SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 or 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934

                   FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998

                                       OR

[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 or  15(d)  OF THE  SECURITIES
     EXCHANGE  ACT  OF  1934

     For the transition period from __________ to __________


                         Commission file number 0-27022
                            OPTICAL CABLE CORPORATION
             (Exact name of registrant as specified in its charter)


            Virginia                                   54-1237042
     (State of incorporation)                       (I.R.S. Employer
                                                    Identification No.)

     5290 Concourse Drive
   Roanoke, Virginia  24019                        (540) 265-0690
    (Address of principal                         (Telephone Number)
     executive offices)

Securities registered pursuant to Section 12(b) of the Act:

                                      None

Securities registered pursuant to Section 12(g) of the Act:

                           Common Stock, no par value

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. (1) Yes [X] No[ ](2) Yes [X] No[ ]

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

     The aggregate market value of shares of common stock held by non-affiliates
at January 15, 1999 was $22,453,512.

     As of January 15, 1999,  37,862,936 shares of the Registrant's Common Stock
were outstanding.


<PAGE>
                       DOCUMENT INCORPORATED BY REFERENCE

Portions of Optical Cable Corporation's  definitive Proxy Statement for its 1999
Annual  Meeting of  Shareholders  to be filed with the  Securities  and Exchange
Commission  pursuant to Regulation 14A under the Securities Exchange Act of 1934
(the "Proxy Statement") are incorporated by reference into Part III of this Form
10-K.

                                     PART I

ITEM 1.    BUSINESS

GENERAL

     The Company  manufactures  and markets a broad range of fiber optic  cables
for "high bandwidth"  transmission of data, video and audio  communications over
moderate  distances of up to approximately 10 miles. The Company's cables can be
used both indoors and outdoors,  are easy and economical to install, and provide
a high degree of reliability.  The Company believes that its products are widely
accepted  for  use  in  fiber  optic  local  area  networks   ("LANs")  and  are
increasingly  accepted  in  other  communications  applications.  The  Company's
products directly address the needs of the moderate distance market by utilizing
a tight-buffered coating that protects the optical fiber and a cable design that
achieves superior mechanical and environmental performance.

     The Company was  incorporated in Virginia in 1983. The Company's  executive
offices are located at 5290 Concourse Drive, Roanoke,  Virginia 24019, telephone
number (540) 265-0690.

INDUSTRY BACKGROUND AND MARKETS

     Application of Fiber Optic Communications Technology

     Fiber optic  technology was developed in the mid-1970s as a  communications
medium offering numerous technical  advantages over metallic  conductors such as
copper.  Optical fiber is an ultrapure glass structure that has been pulled into
a hair thin strand. Optical fiber's advantages include its high bandwidth, which
permits reliable  transmission of complex signals such as multiple  high-quality
audio and video channels, high-speed data formats such as Fiber Distributed Data
Interface   ("FDDI")  and   Asynchronous   Transfer  Mode  ("ATM"),   other  LAN
transmissions, and high-definition television. Relative to copper, optical fiber
has thousands of times the  information  carrying  capacity,  occupies much less
space and operates  more  reliably over greater  distances.  Furthermore,  it is
immune to the  electromagnetic  interference  that causes  static in copper wire
transmission,  as well as to electrical  surges.  Because optical fiber does not
carry electricity, it is a safer choice in flammable environments. Additionally,
communicating  through  optical fiber is more secure than copper because tapping
into fiber optic cable without  detection is very difficult.  Optical fiber also
enjoys technical  advantages over other  communications  media such as satellite
and  microwave   communications,   particularly  in  applications  over  shorter
distances.

     Because  most of the world's  information  storage,  reception  and display
systems (such as  computers,  telephones  and  televisions)  are  electronically
based, various electro-optical  hardware components must be attached to each end
of an optical  fiber.  For instance,  a laser or light  emitting  diode converts
electrically  encoded  information  into light  signals,  which  travel over the
optical  fiber to the  terminal  point of  reception.  At the  terminal  point a
photodetector  converts the information back to its original form. Other passive
optical  components such as optical connectors and splices facilitate the travel
of  a  light   signal  from  one   optical   fiber  to  another  or  to  another
electro-optical  component,  while  couplers  and  splitters  combine  or divide
signals, thereby permitting simultaneous  distribution of information to or from
multiple locations. The cost of the necessary  electro-optical  transmitters and
recorders has been reduced to the point where fiber optic cable is  economically
feasible for many moderate distance applications.


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<PAGE>


     Like copper cable, fiber optic cable is restricted to applications in which
it is possible to lay cable between the point of  transmission  and the point of
reception. Wireless communication media do not have this limitation.

     The Long Distance Telephone Market

     Private  industry  initially  developed  optical  fiber  systems  for  long
distance commercial applications,  particularly the U.S. telephone networks. For
the long  distance  telephone  market,  "single mode" optical fiber is generally
used.  To protect the optical  fiber  without  adversely  affecting  its optical
performance,  fiber optic cable producers use a high-density  (i.e.,  high fiber
count)  "loose tube" cable  construction.  This cable design was intended to put
many optical fibers in a small,  relatively  inexpensive  cable. To protect such
cables from water penetration,  manufacturers add a water-blocking but flammable
gel, making them unsuitable for indoor use.

     U.S. long distance carriers have aggressively  installed fiber optic routes
across the United States.  Since the late 1980s,  optical fiber has  constituted
nearly all of the long distance  telephone  network,  as well as the interoffice
local exchange network connecting central telephone offices in the same area.

     The Moderate Distance Market

     In the 1970s  the U.S.  government  made  available  substantial  funds for
research and  development  to  determine  the  viability  of optical  fiber as a
solution to critical  communications  problems  faced by the  military and other
agencies.  In the course of addressing these challenging,  multiple  termination
point applications,  which were predominately over moderate distances, engineers
achieved  significant   technological   advances.  Such  advances  included  the
introduction   of   "multimode"   optical  fiber  and  the   development  of  an
easy-to-handle  "tight-bound"  cable  structure  that afforded the optical fiber
effective  protection against mechanical shock, water,  extreme temperatures and
other stresses likely to be encountered in a battlefield environment.

     High levels of production of optical  fiber,  cable and  components for the
long  distance  telephone  market  since the  mid-1980s  have  resulted  in cost
reductions  that make fiber  optic  cable  economically  feasible  for a growing
number of potential customers with moderate distance business application needs.
Such applications include data communications,  LANs, telecommunications,  video
transmission,  including cable television, and military tactical communications.
Particularly in data  communications,  high performance,  rugged, and survivable
fiber  optic  cable is well suited and has become  economically  attractive  for
diverse and often unpredictable installation environments.  The Company believes
that the LAN market is  particularly  attractive.  LANs are often  installed  at
corporate  offices,  hospitals,  utilities,  academic  campuses,  factories  and
transportation management facilities.

     The  increasing   standardization  of  communications  technology  and  the
increasing  demand for high bandwidth  (i.e.,  high data capacity or volume) are
expected to  facilitate  optical  fiber's  further  penetration  of the moderate
distance market  presently  served by copper cable.  Fiber optic cable is better
able to maximize the utility of emerging LAN interface  standards,  such as FDDI
and ATM, and has  therefore  become a preferred  data  transmission  medium.  In
addition, high speed, high bandwidth  applications,  such as video conferencing,
imaging and Internet  access,  are growing and are driving  increased demand for
fiber optic cable in moderate distance applications.

     The large cable television companies,  often referred to as Multiple System
Operators,   the  Regional  Bell  Operating  Companies   ("RBOCs"),   and  other
independent  long  distance  carriers are  competing to provide  enhanced  cable
television,   data,  and  other  information   highway  services  to  homes  and
businesses.  Many of these  companies  have  begun to use,  on a limited  basis,
optical fiber systems in the portion of the U.S.  telephone  networks which lies
between telephone  companies' central offices and subscribers' offices and homes
(the  "subscriber  loop").  To date, the subscriber loop remains  overwhelmingly
copper.  Because the subscriber  loop represents  approximately  90% of the U.S.
telephone system (measured by total length of


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<PAGE>


cable),  the potential  demand for fiber optic cable in this application is very
large, provided that cost parity with copper cable systems can be achieved.

THE COMPANY'S SOLUTION

     Fiber optic cables used for moderate distance applications may be subjected
to many different stress environments.  Cables installed inside buildings may be
routed  through cable trays,  floor ducts,  conduits and walls and may encounter
sharp  corners or edges.  They may be pulled  without  lubricant,  resulting  in
higher pull tensions, and stressed to the breaking point if care is not used. In
the  outdoor  and  underground  environments,  cables  are  often  subjected  to
moisture,  ultra-violet  radiation and long pulling  distances  through conduits
with a variety of bends and corners,  resulting in high pulling tensions.  These
conditions  can be aggravated if installers  are not  adequately  trained in the
installation of fiber optic cable. The Company's  founders  recognized that, for
many applications, the stresses on the cables during installation are similar to
those in the military tactical  environment,  for which the Company's technology
was  initially  developed.  The Company  applied this  technology  to commercial
products  serving a market that could not be  adequately  served by  gel-filled,
loose tube cable manufactured for the long distance telephone market.

     The Company  believes that nearly one-half of the fiber optic cable sold in
the moderate  distance  market today is the gel-filled,  loose tube type,  which
requires  careful  installation  and extensive  preparation for termination with
connectors.  While this cable  design  has  served the long  distance  telephone
market  reasonably well, it was not designed to withstand the stress that cables
undergo  during  installation  in  the  LAN  or  subscriber  loop  environments.
Gel-filled,  loose tube  cables are  difficult  to  terminate  with  connectors,
because they cannot be  mechanically  attached  directly to the cable's  optical
fibers.  Designed  for long,  straight  outdoor  runs,  the cables are stiff and
difficult  to place in  complex  installations  and are  flammable  and thus not
suited for indoor use. When used for indoor/outdoor installations,  these cables
must be spliced near the building  entrance to flame  retardant  cables suitable
for indoor use, adding cost and complexity and reducing reliability.  Therefore,
the total  installed cost of  gel-filled,  loose tube cables is high in moderate
distance applications.

     In  contrast,  the  Company's  products  address the needs of the  moderate
distance market by utilizing a tight-buffered  coating that protects the optical
fiber and a cable design that achieves  superior  mechanical  and  environmental
performance.  The  Company's  products  are derived from  technology  originally
developed for military applications requiring very rugged,  flexible and compact
fiber optic cables.  Unlike gel-filled  cables, the Company's cables may be used
indoors and outdoors,  are flame  resistant,  flexible,  easy and  economical to
install,  and provide a high degree of  reliability.  The Company  believes that
because of these  features,  its products  are widely  accepted for use in fiber
optic LANs and are increasingly accepted in other applications.

THE COMPANY'S STRATEGY

     The Company's  primary  strategy is to capitalize on its proprietary  cable
manufacturing  processes and  technologies  to provide a  comprehensive  line of
versatile fiber optic cables with superior features and competitive pricing that
appeals  to  the  large,   diverse  and  growing   market  for  high   bandwidth
communications over moderate distances.

     Focus on the Moderate Distance Market

     Optical fiber has become an accepted  medium for the  transmission of data,
video and audio in moderate  distance  applications in cities,  factories,  high
rise  buildings,  and on  campuses.  High  speed,  high  bandwidth  applications
deployed in LAN  environments  are growing in both large and small  corporations
and are driving  increased  demand for optical fiber.  Increasing  deployment of
multimedia  systems  on LANs that  utilize  protocols  such as FDDI and ATM also
enhances the demand for bandwidth.

     The Company's products address the needs of the moderate distance market by
utilizing a  tight-buffered  coating that protects the optical fiber and a cable
design that achieves superior mechanical and environmental

                                       4

<PAGE>


performance.  The Company  believes that because of the outstanding  features of
its fiber optic cable,  including  suitability  for indoor and outdoor use, easy
and  economical  installation  and a high degree of  reliability,  the Company's
products  have  become  well   established   for  optical  fiber  LANs  and  are
increasingly accepted for other applications.

     Develop High Performance Products and Offer a Broad Product Line

     The Company  believes  that  serving both the premium  performance  and the
price  competitive  parts of the  moderate  distance  market best  utilizes  its
development and manufacturing  capabilities.  The Company's  Ultra-FoxTM product
line  provides  optical  fiber  products  that are  competitively  priced,  with
features that the Company believes are superior to its  competitors'  offerings.
The Ultra-FoxTM plus product line shares many of the materials and features with
the Company's  military tactical cable products and is marketed to customers who
want the most reliable installations for their critical communication or control
processes.  Since January 1994, the Company's quality management system has been
certified to the internationally recognized ISO 9001 quality standard.

     Leverage Existing Technologies and Knowledge

     The  Company  has  extensive  expertise  in  optical  fiber  packaging  and
applications  design,  which  it  utilizes  for new  products.  The  Company  is
responsive to, and works to anticipate the requirements  of, its customers.  Its
expertise with tight-buffered  cable technology  facilitates  development of new
products and variations of existing products.  Products that are developed for a
special application also may be introduced to the broader market.

     Capitalize on Proprietary, Automated Manufacturing Processes

     The Company believes that its customized,  internally  developed and highly
automated manufacturing  processes provide a competitive advantage.  The Company
has developed  proprietary  process  control  systems to ensure  consistency and
uniformity  at  high  throughput  rates.  Ample  capacity,  versatile  automated
production  processes  and a broad range of products  are intended to enable the
Company to be flexible and responsive to customer needs.

     Offer Cost Effective Solutions to its Customers

     The  Company  believes  that its  products  are  rugged,  easy to  install,
versatile  and  highly   reliable,   making  them  attractive  to  distributors,
installers,  and most importantly,  end users.  Because the Company's cables are
multipurpose,   distributors  can  stock  fewer  varieties  and  therefore  less
quantities of cable.  For installers and systems  integrators,  the multipurpose
feature can significantly  reduce  installation costs by eliminating the need to
transition from indoor cable to outdoor cable at a building entrance.  This also
enhances  reliability by eliminating splices and possible high stress on optical
fibers that could lead to breakage. This simplified installation, lower cost and
enhanced  reliability  are also valued by the end user,  because a long lasting,
trouble-free  cable is the basis for minimizing down time and maximizing  system
availability.

     Distribution and Marketing Presence

     The Company  distributes its products through  independent  distributors to
supplement  the  Company's  existing  distribution  channels  and to provide the
Company  with access to a greater  number of  potential  customers in the United
States. Revenues from international sales were approximately 25%, 27% and 22% in
fiscal 1996, 1997 and 1998, respectively.  The Company does not separately track
gross profit or expenses attributable to international sales. Substantially, all
of the  Company's  international  sales are  denominated  in U.S.  dollars.  The
Company has no material assets located  outside of the United States.  (See also
Note 9 to the Financial Statments which begin on page 35.)

                                       5

<PAGE>


     Additionally,  in  December  1998,  the  Company  announced  its  plans  to
establish an Internet subsidiary to offer one-stop shopping to global purchasers
of communication materials.  Working with IBM's E-Commerce division, the Company
is in the initial stages of site design, but expects to be operational  sometime
in the spring of 1999.  Initially,  the  venture  will be part of the  Company's
existing web site, http://www.occfiber.com,  and will include only the Company's
product  line.  The  Company  intends  to look for  opportunities  to  establish
strategic alliances with other leading suppliers of communications  equipment to
expand the  web-site's  future  offerings and  eventually  create an independent
communications superstore.

PRODUCTS AND TECHNOLOGY

     Products

     The Company  manufactures  and markets a broad range of fiber optic  cables
that  provide  a  high  bandwidth   transmission   for  data,  video  and  audio
communications over moderate distances.  The Company's products are derived from
technology originally developed for military applications requiring very rugged,
flexible and compact  fiber optic  cables.  The  Company's  method of applying a
tight-buffered  coating on each  optical  fiber  before it is encased  minimizes
microbending, the primary cause of signal loss in optical fibers.

     The Company has  pioneered a  pressure-extrusion  technique  for applying a
cable jacket  directly  over the fiber optic cable core  elements,  resulting in
high cable tensile strength and lateral stress  resistance.  Such  Core-LockedTM
jackets  allow the cable to  operate  as a single  mechanical  unit,  maximizing
resistance  to tears  during  installation  pulls  through  narrow  spaces.  The
Company's product line is deliberately diverse and flexible, in keeping with the
evolving  application  needs within the moderate  distance  market.  Most of the
Company's  cable  designs are  available  in both the  Ultra-FoxTM  Plus premium
product and the  Ultra-FoxTM  highly  featured but cost  competitive  commercial
product.




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                                       6
<PAGE>

<TABLE>
<CAPTION>
           Product Type                       Features/Description                          Applications
           ------------                       --------------------                          ------------
<S>                                 <C>                                      <C>
A-Series Simplex and Duplex          o   simplex (one optical fiber) and      o  short "patch cord" cables
  "Assembly" Cables                      duplex (two optical fibers)          o  links between electronic equipment
                                         cables                                  and main fiber optic cable
                                     o   tight-buffered coating on each       o  routing connections in patching
                                         optical fiber                           systems
                                     o   aramid yarn strength members         o  indoor use
                                     o   thermoplastic outer jacket
                                     o   flame retardant

-----------------------------------------------------------------------------------------------------------------------
B-Series "Breakout"                  o   2 to 156 optical fibers              o  direct termination with connectors
  Cables                             o   tight-buffered coating on each          on each optical fiber
                                         optical fiber                        o  short and moderate distance links
                                     o   elastomeric jacket encases each         between buildings or within a
                                         optical fiber and surrounding           building, where multiple termination
                                         aramid yarn strength members            points are needed
                                         (similar to an A-Series simplex      o  installations where ease of
                                         cable)                                  termination and termination cost are
                                     o   Core-LockedTM outer jacket              important factors
                                     o   rugged                               o  indoor and outdoor use
                                     o   flame retardant
                                     o   moisture and fungus resistant

-----------------------------------------------------------------------------------------------------------------------
D-Series "Distribution"              o   2 to 156 optical fibers              o  longer distance runs where size and
  Cables                             o   tight-buffered coating on each          cable cost are more significant
                                         optical fiber                        o  can be armored for additional
                                     o   Core-LockedTM outer jacket              protection in buried and overhead
                                         encases the optical fibers and          installations
                                         aramid yarn strength members         o  indoor and outdoor use
                                     o   smaller, lighter and less
                                         expensive than the B-Series
                                         cable
                                     o   high strength to weight ratio
                                     o   compact size
                                     o   rugged
                                     o   flame retardant
                                     o   moisture and fungus resistant

-----------------------------------------------------------------------------------------------------------------------
G-Series "Subgrouping"               o   up to 864 optical fibers in          o  high fiber count systems
  Cables                                 various subgroup sizes               o  subgroups needed to facilitate
                                     o   multi-fiber subcables, each             organization of large numbers of
                                         similar to a D-Series cable             optical fibers
                                     o   Core-LockedTM outer jacket           o  subcables routed to different
                                         surrounds subcables                     locations
                                     o   high density "micro" construction    o  installations requiring several
                                     o   rugged                                  different optical fiber types
                                     o   flame retardant                      o  indoor and outdoor use
                                     o   moisture and fungus resistant

-----------------------------------------------------------------------------------------------------------------------
</TABLE>


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<PAGE>


     A-Series Simplex and Duplex  "Assembly"  Cables.  Simplex and duplex cables
are round single fiber and "zip cord" two-fiber structures,  respectively.  Both
cables contain tight-buffered optical fibers, aramid yarn strength members and a
thermoplastic  outer jacket for each fiber.  They are used for "jumpers"  (short
length patch cords) and for "pigtails"  (short lengths of cable with a connector
on one end). Various outer jacket materials are offered to provide  flammability
ratings and handling  characteristics tailored to customers' needs. These cables
are  often  privately  labeled  and  sold to  original  equipment  manufacturers
("OEMs") who produce the cable assemblies.

     B-Series  "Breakout"  Cables.  The B-Series  cables  consist of a number of
subcables,  each  consisting of a single  optical fiber and aramid yarn strength
members similar to an A-Series simplex cable. These subcables are tight-bound in
a pressure-extruded, high performance Core-LockedTM PVC outer jacket to form the
finished multi-fiber cable. Like the A-Series cables, the subcables are intended
to be terminated directly with connectors. This direct termination feature makes
this cable type particularly  suited for shorter distance  installations,  where
there are many  terminations  and termination  costs are more  significant.  The
materials  and  construction  of the  cable  permit  its use  both  indoors  and
outdoors.  These  features  make the cable cost  effective for use in campus and
industrial complex installations, between and within buildings.

     D-Series "Distribution" Cables. The Company's D-Series cables are made with
the same  tight-buffered  optical fiber and high performance  Core-LockedTM  PVC
outer jacket as the B-Series  cable.  Unlike the B-Series cable,  however,  each
tight-buffered  optical fiber in a D-Series cable is not covered with a separate
subcable  jacket.  D-Series cable is intended for longer distance  applications,
where  termination  considerations  are less  important and often traded off for
size,  weight and cost. The  tight-buffered  optical fiber and Core-LockedTM PVC
outer  jacket  make  D-Series  cables  rugged  and  survivable,  with  a  small,
lightweight  configuration.  The high  strength to weight  ratio of these cables
makes them well suited for  installations  where long  lengths of cables must be
pulled through duct systems.  D-Series cable is used in relatively longer length
segments of installations.

     G-Series  "Subgrouping"  Cables.  This  cable  design  combines a number of
multi-fiber  subcables,  each  similar to a  D-Series  cable.  Each  multi-fiber
subcable  is  tight-bound  with  an  elastomeric  jacket,   providing  excellent
mechanical and  environmental  performance.  These  subcables are contained in a
pressure extruded,  high performance  Core-LockedTM PVC outer jacket to form the
finished  cable.  This design permits the  construction of very high fiber count
cables.  These cables may be used where  groups of optical  fibers are routed to
different locations.  The Company has fabricated a developmental sub-group cable
containing over 1,000 fibers  intended for high density,  moderate length routes
such as urban telephone distribution systems.

     Other Cable Types.  The Company produces many variations on the basic cable
styles  presented  above  for  more  specialized   installations.   For  outdoor
applications,  both  the  B-Series  and  D-Series  cables  may be  armored  with
corrugated  steel  tape  for  further  protection  in  underground  or  overhead
installations.  For overhead  installations on utility poles, the Company offers
several self-supporting versions of the D-Series cables, with higher performance
outer jackets.  One contains additional aramid yarn strength members, to support
its weight  with wind and ice loading  over long  unsupported  lengths.  Another
style has a separate  strength  member,  either metallic or  non-metallic,  in a
figure eight  configuration,  to reduce installation costs. The Company's cables
are available in several  flammability  ratings,  including  "plenum" for use in
moving air spaces in buildings,  and "riser" for less critical  flame  retardant
requirements.  "Zero halogen"  versions of the B-Series and D-Series  cables are
available  for use in enclosed  spaces  where there is concern  over  release of
toxic gases during fire. Composite cables combining optical fiber and copper are
offered to facilitate the transition from  copper-based  to optical  fiber-based
systems without further installation of cable.

     Product Development

     The  Company   continues  to  develop   enhancements   to  its   automated,
computer-controlled  production  processes  that it  believes  increase  product
quality and reduce costs. Many of the Company's  technological  advances are the
result  of  refinements   and   improvements   made  during   production   runs.
Occasionally, potential customers contact the Company to develop new products or
modify product designs for them, which ultimately may appeal to other customers.
The development  costs associated with new products and modified product designs
requested by the customer are included in the price charged to that customer. By
utilizing these new products and modified product designs, the Company continues
to improve its product line with minimal  direct  expenditures  for research and
development.

                                       8
<PAGE>


MAJOR MARKET APPLICATIONS

     The most common  application  of the Company's  products is in LANs,  where
optical fiber is widely used as the "backbone" or "trunk,"  connecting groups of
work stations and central file servers. In its typical implementation, the fiber
optic cable may be installed between wiring closets in a building,  or installed
between  buildings in a multi-building  complex.  Fiber optic cable runs between
electronic equipment that combines the signals of many workstations. Because the
combined signals may carry a large volume of critical  information,  fiber optic
cable,  which  is  immune  to  electrical  interference,  is often  desired.  In
comparison,  copper  wires  carry  less  information,  or  the  same  amount  of
information  for a shorter  distance,  in either case  remaining  susceptible to
electrical noise and  interference.  The following are typical  applications for
the Company's fiber optic cable:

     Office Facilities. Banks, stock trading companies, insurance companies, and
other  businesses  often  have a need to  distribute  information  among a large
number of workstations,  have time-critical data and would incur severe costs as
a result of system  failures.  A LAN connected with fiber optic cable has in the
past several years been an increasingly  common way of  implementing  management
information systems for these businesses.

     Educational  Institutions.  Colleges and universities  have been leaders in
implementing large fiber optic networks. Many states have undertaken large-scale
projects to install  networks  in high  schools  and even grade  schools.  These
systems  link  personal  computers  with central file  servers.  As  interactive
learning systems require increased  transmission speeds, optical fiber becomes a
logical medium.

     Manufacturing  and Mining  Facilities.  Manufacturing and mining facilities
are typically  not air  conditioned,  are less clean and  otherwise  have a less
controlled environment than other types of businesses.  They often contain heavy
electrical equipment, which causes electromagnetic  interference if conventional
copper cable is used.  The  advantages of fiber optic cable in this  environment
include immunity to electrical  noise,  ruggedness,  high  information  carrying
capacity and greater distance  capability.  The Company's products are installed
in  automotive  assembly  plants,  steel plants,  chemical and drug  facilities,
petroleum refineries, mines and other similar environments.

     Health Care  Facilities.  Hospitals  have extensive data transfer needs for
medical records, patient monitoring,  inventory,  billing and payroll functions.
The transfer of electronically  stored images of x-rays,  MRIs and CAT scans has
increased to  facilitate  analysis and  diagnosis at multiple  locations.  These
applications  require high data  transfer  rates.  Optical  fiber is a preferred
solution,  especially  in  electromagnetic  environments  with heavy  electrical
equipment such as x-ray machines.

     Traffic   Control   Systems.   Traffic  system   applications   range  from
surveillance  and control of traffic flow in cities to  installation of sensors,
automatic  toll  collection,  video  monitoring  and control of signs in "smart"
highway  programs.   These  applications  often  require  transmission  of  high
bandwidth  signals such as video  monitoring,  for which  optical  fiber is well
suited. The Company's cables offer ruggedness,  reliability and cost savings for
termination  in systems that are near the vibrations of traffic and require many
termination points.

     Telephone  Companies.  The Company has worked with several  RBOCs for their
business customers' requirements.  As high bandwidth services of the information
highway  are  brought  closer to more homes and  businesses,  the  bandwidth  of
optical fiber becomes more important.

                                       9

<PAGE>


SALES, MARKETING AND CUSTOMER SERVICE

     The  Company's  products  are sold to end  users,  electrical  contractors,
system  integrators,  value-added  resellers  ("VARs"),  OEMs and  distributors.
Additionally,  the Company has plans to establish a subsidiary  which will offer
the Company's  products over the Internet.  Distribution  methods are adapted to
the particular  needs of different types of customers.  The decision to purchase
the  Company's  products  may be made  by end  users,  distributors,  electrical
contractors,  system integrators or specialized installers. The Company attempts
to reach these decision makers by advertising in fiber optics trade journals and
other  communications  magazines.  The  Company  also  participates  in numerous
domestic and  international  trade shows  attended by customers and  prospective
customers.  International sales are made primarily through foreign distributors,
system integrators and VARs.

     The   Company's   field  sales  force   consists   of   independent   sales
representatives  located in various  geographic  areas.  The field  sales  force
provides  sales  support  for  distributors,  system  integrators  and  VARs and
communicates with the customer's purchase decision makers. The field sales force
is  supported  by inside  sales  personnel  and  supervised  by  regional  sales
managers.  The inside sales group provides quotations and customer service.  The
regional sales managers  provide  on-site sales support with major customers and
are  responsible  for  major  customers  and  opportunities.  For more  in-depth
technical  support,  the sales group has access to engineering,  quality control
and  management  personnel who have  extensive  fiber optic cable  expertise and
industry experience.

     Furthermore,  the Company  believes  that it has a  reputation  for product
excellence  based on its  success  with  large  projects  for end users  such as
Chrysler  Corporation,  3M, Virginia Polytechnic Institute and State University,
Bankers Trust and Salomon  Brothers Inc, and for  integrators  such as Ameritech
Information  Systems  and US WEST.  The  Company  had no  single  customer  that
accounted  for more  than 5% of its net  sales  in  fiscal  1996,  1997 or 1998.
However,  in  fiscal  1998,  27% of net  sales  were  attributable  to two major
domestic  distributors.  Most of the Company's  revenue in each quarter  results
from orders received in that quarter.  Accordingly, the Company does not believe
that its backlog at any particular  point in time is indicative of future sales.
The Company  believes  that its  customer  base is diverse,  crossing  over many
markets and regions worldwide and believes that it is important to maintain that
diversity to avoid  dependence on any particular  segment of the economy or area
of the world.

MANUFACTURING AND SUPPLIERS

     The Company's manufacturing operations consist of applying a variety of raw
plastic materials to optical fibers.  The key raw material in the manufacture of
the Company's products is optical fiber,  which the Company currently  purchases
from four  manufacturers.  The  Company  works with its  vendors in an effort to
ensure a  continuous  supply.  The Company  utilizes two sources for the cable's
aramid yarn  strength  member and several  suppliers of coating  materials.  The
Company has not experienced difficulty in arranging alternate sources. All other
raw materials have at least one backup source.

     The Company  believes that by  maintaining a consistent  relationship  with
suppliers, it can obtain better quality control and emergency deliveries.  Being
able to deliver  product on time has been an important  factor in the  Company's
success.  To date, the Company has been able to obtain adequate  supplies of its
raw materials in a timely manner from existing sources or, when necessary,  from
alternate sources.  However, any disruption in the supply of raw materials could
adversely  affect the Company's  cable  production  capability and its operating
results.

     The Company believes that other fiber optic cable  manufacturers  generally
carry minimal amounts of raw materials and finished goods inventory. The Company
generally  holds raw materials and finished goods  inventory in amounts  greater
than  that of its  competitors  to ensure a quick  response  after  receiving  a
customer's order.

     The Company believes its quality control  procedures have been instrumental
in achieving  the  performance  and  reliability  of its  products.  The Company
produces cable using the quality control  procedures of MIL-I-45208 (the primary
standard applicable to most government purchasers of cable).


                                       10
<PAGE>


     Since  January  1994,  the  Company's  quality  management  system has been
certified to the internationally  recognized ISO 9001 quality standard. ISO 9000
is a  series  of  standards  agreed  to by the  International  Organization  for
Standardization  (ISO).  ISO  9001 is the  highest  level of  accreditation  and
includes  an  assessment  of 20  elements  covering  various  aspects  of design
development,  procurement, production, installation and servicing. The Company's
certification  was  obtained  through  an  audit  by a  qualified  international
certifying  agency.  In order to maintain  its  certification,  the Company must
continue to comply with the standards.




















                                       11
<PAGE>


PROPRIETARY RIGHTS

     None of the  Company's  current  manufacturing  processes  or  products  is
protected  by patents.  The Company  relies on a  combination  of trade  secret,
copyright and trademark law, nondisclosure  agreements and technical measures to
establish and protect its rights pertaining to its production  technology.  Such
protection  may  not  deter   misappropriation  or  preclude   competitors  from
developing production  techniques or equipment with features identical,  similar
or superior to the Company's. The Company believes, however, that because of the
rapid  pace of  technological  change in the data  communications  industry  and
particularly  in the  fiber  optic  cable  segment,  legal  protection  for  the
Company's  products is less  significant  to the  Company's  prospects  than the
knowledge,  ability and expertise of its management and technical personnel with
respect to the timely  development  and  production  of new products and product
enhancements.  The Company  considers its proprietary  knowledge with respect to
the  development  and  manufacture of fiber optic cable to be a valuable  asset.
This expertise enables the Company to formulate new cable compositions,  develop
special  coatings  and  coating  methods,  develop and  implement  manufacturing
improvements   and  quality  control   techniques,   and  design  and  construct
manufacturing and quality control equipment. The Company restricts access to its
manufacturing  facility  and  engineering  documentation  to maintain  security.
Employees are required to sign nondisclosure agreements.

     The  Company  believes  that  none of its  products,  trademarks  or  other
proprietary rights infringes upon the proprietary rights of others. There can be
no assurance,  however,  that third parties will not assert  infringement claims
against  the  Company in the future  with  respect to the  Company's  present or
future  products which may require the Company to enter into license  agreements
or result in protracted and costly litigation,  regardless of the merits of such
claims.

COMPETITION

     The market for fiber optic cable, including the moderate distance market in
which the Company's  products are concentrated,  is highly  competitive.  Siecor
Corp.  (a joint venture of Siemens AG and Corning) and Lucent  Technologies  are
the  leading  manufacturers  of fiber  optic  cable  for both the long  distance
telephone  market and the moderate  distance  market.  Although both manufacture
gel-filled,  loose tube cables, a significant portion of Lucent Technologies and
Siecor  Corp.'s  fiber optic cable  sales are  tight-buffered  fiber optic cable
products in the moderate distance market.  Also, Corning and Lucent Technologies
are principal suppliers of optical fiber worldwide.  The Company's  competitors,
including Siecor Corp. and Lucent Technologies,  are more established,  having a
large business base in the long distance telephone, gel-filled, loose tube cable
market.  Those  companies can benefit from greater market  recognition  and have
greater financial, research and development,  production and marketing resources
than the Company.

     Additionally,  fiber  optic  cable  competes  with copper wire cable on the
basis  of cost  and  performance  tradeoffs.  The  cost  of the  electro-optical
interfaces  required  for fiber  optic  systems  and  higher  speed  electronics
generally  associated  with high  performance  fiber optic systems can make them
uncompetitive  in  applications  where the  advantages  of optical fiber are not
required.  Fiber optic cable also competes with other  alternative  transmission
media including wireless and satellite communications.

     The Company believes that it competes  successfully against its competitors
on the basis of breadth of product features,  quality,  ability to meet delivery
schedules,  technical support and service,  breadth of distribution channels and
price. Maintaining such competitive advantages will require continued investment
by the  Company in product  development,  sales and  marketing.  There can be no
assurance  that  the  Company  will  have  sufficient  resources  to  make  such
investments or that the Company will be able to make the technological  advances
necessary to maintain its competitive position. An increase in competition could
have a material adverse effect on the Company's  business and operating  results
because of price reductions and loss of market share. Competition could increase
if new  companies  enter the  market or if  existing  competitors  expand  their
product lines.

                                       12
<PAGE>


EMPLOYEES

As of October 31, 1998, the Company  employed a total of 133 persons,  including
34  in  sales,  marketing  and  customer  service,  12 in  engineering,  product
development  and quality  control,  75 in  manufacturing,  and 12 in finance and
administration. None of the Company's employees is represented by a labor union.
The Company has experienced no work stoppage and believes its employee relations
are excellent.

ITEM 2. PROPERTIES

     The  Company's  principal  administration,  marketing,  manufacturing,  and
product  development  facilities  are located in a 148,000  square foot building
located  adjacent to the Roanoke,  Virginia  airport and major trucking  company
facilitates.  The Company  believes that its  production  equipment is presently
operating at approximately 50% of its capacity.

ITEM 3. LEGAL PROCEEDINGS

     In the opinion of the Company's management,  there are no legal proceedings
pending  to which the  Company is a party or to which any of its  properties  is
subject,  other than  ordinary,  routine  litigation  incidental to the business
which is not  expected  to have a  material  adverse  effect on the  results  of
operations, financial condition or cash flows of the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     There were no issues or matters  submitted  to a vote of  security  holders
during the fourth quarter of the fiscal year ended October 31, 1998.













                                       13
<PAGE>


                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The Company's  Common Stock is traded on the Nasdaq  National  Market under
the symbol  "OCCF".  The  following  table  sets  forth for the  fiscal  periods
indicated the high and low sales prices of the Common Stock,  as reported on the
Nasdaq National Market,  during the two most recent fiscal years. On January 15,
1999, the Company's Common Stock closed at a price of $ 12.125 per share.




<TABLE>
<CAPTION>
FISCAL YEAR ENDED OCTOBER 31, 1998                                 HIGH             LOW
----------------------------------                                 ----             ---
<S>                                                              <C>              <C>
First Quarter (November 1, 1997 to January 31, 1998)            $ 12.125         $ 8.125

Second Quarter (February 1 to April 30, 1998)                     13.500           9.000

Third Quarter (May 1 to July 31, 1998)                            11.250           8.500

Fourth Quarter (August 1 to October 31, 1998)                     12.750           6.500



FISCAL YEAR ENDED OCTOBER 31, 1997
----------------------------------

First Quarter (November 1, 1996 to January 31, 1997)            $ 14.750        $ 10.375

Second Quarter (February 1 to April 30, 1997)                     17.750           9.875

Third Quarter (May 1 to July 31, 1997)                            13.125           7.125

Fourth Quarter (August 1 to October 31, 1997)                     16.250           7.875
</TABLE>

----------

     As of January 15, 1999,  there were an estimated 4,279 holders of record of
the Common Stock.

     The Company has not paid or declared any cash dividends on its common stock
since the completion of its initial public offering in 1996.  While there are no
restrictions on the payment of dividends, the Company does not anticipate paying
any cash dividends on its common stock in the foreseeable future.








                                       14
<PAGE>


ITEM 6. SELECTED FINANCIAL DATA


                            OPTICAL CABLE CORPORATION
                             SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
                                                                               YEARS ENDED OCTOBER 31,
                                                        ----------------------------------------------------------------
                                                          1998         1997          1996         1995          1994
                                                          ----         ----          ----         ----          ----
                                                                           (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                   <C>          <C>           <C>          <C>           <C>
STATEMENT OF INCOME DATA:
     Net sales                                        $    50,589  $    52,189   $    45,152  $    36,360   $    26,217
     Cost of goods sold                                    29,330       30,613        24,907       20,121        14,138
                                                        ----------   ----------    ----------   ----------    ----------
        Gross profit                                       21,259       21,576        20,245       16,239        12,079
     Total operating expenses                               9,939        9,572         8,416        7,660         7,967
                                                        ----------   ----------    ----------   ----------    ----------
        Income from operations                             11,320       12,004        11,829        8,579         4,112
     Other income (expense), net                               57          (47)          198         (379)         (614)
                                                        ----------   ----------    ----------   ----------    ----------
        Income before income tax expense
          and extraordinary item                           11,377       11,957        12,027        8,200         3,498
     Income tax expense (1)                                 4,107        4,150         2,806            -             -
                                                        ----------   ----------    ----------   ----------    ----------
        Income before extraordinary item                    7,270        7,807         9,221        8,200         3,498
     Extraordinary item                                         -            -             -            -          (149)
                                                        ----------   ----------    ----------   ----------    ----------

        Net income                                    $     7,270  $     7,807   $     9,221  $     8,200   $     3,349
                                                        ==========   ==========    ==========   ==========    ==========

     Pro forma Income Data (1):
        Net income before pro forma income
          tax provision, as reported                                             $     9,221
        Pro forma income tax provision                                                 1,747
                                                                                   ----------

        Pro forma net income                                                     $     7,474
                                                                                   ==========


     Earnings per common share
        (pro forma for 1996)                         $       .190  $      .202   $      .190
                                                        ==========   ==========    ==========

     Earnings per common share - assuming
        dilution (pro forma for 1996)                $       .188  $      .200   $      .189
                                                        ==========   ==========    ==========

BALANCE SHEET DATA:
     Working capital                                  $    18,991  $    19,912   $    14,377  $     9,076   $    10,140
     Total assets                                          32,829       35,214        31,127       18,819        19,056
     Long-term debt, less current maturities                    -            -             -            -         8,000
     Total stockholders' equity                            29,991       31,379        23,572       14,952         7,832
</TABLE>

----------
(1)  Through  March 31,  1996,  the Company was not subject to federal and state
     income taxes since it had elected, under provisions of the Internal Revenue
     Code, to be taxed as an S  Corporation.  In connection  with the closing of
     the  Company's   initial   public   offering  (see  note  11  to  financial
     statements),  the  Company  terminated  its  status  as  an  S  Corporation
     effective  March 31, 1996 and became  subject to federal  and state  income
     taxes. Accordingly, the statement of income data for the year ended October
     31, 1996 includes  income taxes from April 1, 1996,  and for  informational
     purposes,  the statement of income data for the year ended October 31, 1996
     includes a pro forma  adjustment  for income  taxes  which  would have been
     recorded  if the Company  had been  subject to income  taxes for the entire
     fiscal year presented.


                                       15
<PAGE>


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
        FINANCIAL CONDITION

                            OPTICAL CABLE CORPORATION
                 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
                      OF OPERATIONS AND FINANCIAL CONDITION


FORWARD-LOOKING INFORMATION

This report may contain certain "forward-looking" information within the meaning
of the federal  securities  laws. The  forward-looking  information may include,
among other information, (i) statements concerning the Company's outlook for the
future, (ii) statements of belief, (iii) future plans, strategies or anticipated
events, and (iv) similar information and statements  concerning matters that are
not historical facts. Such  forward-looking  information is subject to risks and
uncertainties  that may  cause  actual  events  to  differ  materially  from the
expectations  of the  Company.  Factors that could cause or  contribute  to such
differences  include,  but are  not  limited  to,  the  level  of  sales  to key
customers,  actions by  competitors,  fluctuations in the price of raw materials
(including  optical fiber), the Company's  dependence on a single  manufacturing
facility,  the ability of the Company to protect its  proprietary  manufacturing
technology,   the  Company's  dependence  on  a  limited  number  of  suppliers,
technological  changes and introductions of new competing  products,  changes in
market demand,  and market and economic  conditions in the areas of the world in
which the Company operates and markets its products.

RESULTS OF OPERATIONS

Net Sales

Net sales  consists  of gross sales of  products,  less  discounts,  refunds and
returns.  Net sales  decreased  3.1 percent to $50.6 million in fiscal 1998 from
$52.2  million for fiscal 1997.  This  decrease was  primarily  attributable  to
reduced raw fiber prices  resulting in some downward  pressure on selling prices
as well as  reduced  demand in the Far and Middle  East as a result of  volatile
economic conditions in those regions. In addition, weather conditions and delays
in  large  projects,  as well  as a  reallocation  of  capital  spending  by the
Company's  customers  away from  communications  expenditures  towards Year 2000
projects contributed to the decrease.

Net sales  increased  15.6  percent to $52.2  million in fiscal  1997 from $45.2
million  for fiscal  1996.  This  increase  was  attributable  to the  Company's
continued  effort to reach a broader  customer base throughout the United States
and  internationally  with increased  advertising,  trade show  attendance,  and
direct sales presence in more states.  This effort  resulted in greater sales in
all market segments and product types.

Management  believes that the Company's  business will grow as the global market
for  fiber  optic  cable  used  for  moderate  distance   applications  expands.
Management  anticipates that new electronic  communication devices will continue
to  become  more  reliant  on  fiber  optic   technology  to  achieve   improved
performance. Additionally, the Company expects new markets for fiber optic cable
to emerge as fiber optic sensors are developed for production plant  automation,
smart  highways,  security  applications,   and  other  specialty  applications.
Management believes the Company's unique technological  background and specialty
market  expertise  should  assist  the  Company  in  capturing  its share of any
increase in the global  market for fiber optic cable used for moderate  distance
applications  and  contribute  to future  earnings  growth for the Company.  The
Company also intends to use its existing product line to make inroads into other
markets   such   as   moderate    distance    applications    for    single-mode
telecommunications and cable television.


                                       16

<PAGE>



                            OPTICAL CABLE CORPORATION
                 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
                OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)


Gross Profit Margin

Cost of goods sold  consists of the cost of  materials,  compensation  costs and
overhead related to the Company's manufacturing operations.  The Company's gross
profit  margin  (gross  profit as a percentage  of net sales)  increased to 42.0
percent in fiscal 1998 from 41.3  percent in fiscal 1997.  This slight  increase
was due to reduced raw fiber prices,  partially offset by some downward pressure
on selling  prices,  by the impact of the  increase in the ratio of large orders
and the  increase  in the  ratio  of net  sales  attributable  to the  Company's
distributors  during the year.  During fiscal 1998, sales from orders $50,000 or
more  approximated  18 percent of net sales  compared  to 20 percent  for fiscal
1997. Discounts on large orders are generally greater than for sales from orders
less than  $50,000.  In  addition,  for fiscal 1998,  net sales to  distributors
approximated  62  percent  of net  sales  versus 57  percent  for  fiscal  1997.
Discounts on sales to distributors  are generally  greater than for sales to the
Company's other customer base.

The Company's gross profit margin  decreased to 41.3 percent in fiscal 1997 from
44.8  percent in fiscal  1996.  This  decrease  was due to  increased  raw fiber
prices,  the Company's product mix sold, the ratio of large orders and the ratio
of net sales attributable to the Company's  distributors during the year. During
fiscal 1997,  sales from orders $50,000 or more  approximated  20 percent of net
sales compared to 19 percent for fiscal 1996. In addition,  for fiscal 1997, net
sales to distributors approximated 57 percent of net sales versus 49 percent for
fiscal 1996.

Selling, General and Administrative Expenses

     Selling,  general and  administrative  expenses consist of the compensation
costs (including sales  commissions) for sales and marketing  personnel,  travel
expenses,  customer  support  expenses,  trade show expenses,  advertising,  the
compensation cost for administration,  finance and general management personnel,
as well as legal  and  accounting  fees.  Selling,  general  and  administrative
expenses as a percentage  of net sales were 19.6 percent in fiscal 1998 compared
to 18.3 percent in fiscal 1997. This higher  percentage was primarily the result
of the fact that net sales for fiscal 1998 decreased while selling,  general and
administrative expenses increased 3.8 percent compared to fiscal 1997. The ratio
of selling, general and administrative expenses as a percentage of net sales was
also impacted due to incurring approximately $130,000 of expenses to develop and
distribute  a  new  catalog   during   fiscal  1998  in  an  effort  to  improve
international sales.

Selling,  general and administrative  expenses as a percentage of net sales were
18.3 percent in fiscal 1997 compared to 18.6 percent in fiscal 1996.  This lower
percentage  was  primarily the result of the fact that net sales for fiscal 1997
increased at a faster rate than  selling,  general and  administrative  expenses
compared  to fiscal  1996.  The ratio of  selling,  general  and  administrative
expenses  as a  percentage  of net  sales  was also  impacted  due to  incurring
approximately  $350,000 of shareholder related expenses during fiscal 1997, such
as  printing  and  distribution  costs  for the  annual  report  and  the  proxy
statement,  and  costs for the  annual  meeting  of  shareholders,  compared  to
approximately $141,000 of similar expenses in fiscal 1996.

Income Before Income Tax Expense

Income  before  income tax  expense of $11.3  million in fiscal  1998  decreased
$579,000  compared to fiscal 1997.  This decrease was primarily due to decreased
sales volume and decreasing  sales prices resulting from reduced raw fiber costs
offset by the slight increase in gross profit margin.


                                       17
<PAGE>



                            OPTICAL CABLE CORPORATION
                 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
                OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)


Income  before  income tax  expense of $12.0  million in fiscal  1997  decreased
$70,000  compared to fiscal  1996.  This slight  decrease was  primarily  due to
increased sales volume offset by the decrease in gross profit margin.

Income Taxes

Through March 31, 1996,  the Company was not subject to federal and state income
taxes since it had elected to be taxed as an S Corporation.  In connection  with
the Company's initial public offering (see note 11 to financial statements), the
Company  terminated its status as an S Corporation  effective March 31, 1996 and
became  subject to federal and state income taxes.  The statements of income for
the years ended  October 31, 1998 and 1997 includes  income taxes,  at effective
tax rates of 36.1 percent and 34.7 percent,  respectively,  and the statement of
income for the year ended October 31, 1996  includes  income taxes from April 1,
1996, and, for informational  purposes, a pro forma adjustment for income taxes,
at an effective tax rate of 37.9 percent,  which would have been recorded if the
Company had been subject to income taxes for the entire  period  presented.  The
higher  effective  tax rate for  fiscal  1998  compared  to  fiscal  1997 is due
primarily to a reduced benefit of the Company's foreign sales corporation due to
lower international sales. The lower effective tax rate for fiscal 1997 compared
to fiscal 1996 is due  primarily to the benefit of the  Company's  foreign sales
corporation.

Net Income

Net income for fiscal 1998 was $7.3 million  compared to $7.8 million for fiscal
1997. Net income decreased  $537,000 due primarily to decreased sales volume and
decreasing  sales  prices  resulting  from reduced raw fiber costs offset by the
slight increase in gross profit margin.

Net income for fiscal 1997 was $7.8 million  compared to $9.2 million for fiscal
1996.  Net income  decreased $1.4 million due primarily to income tax expense of
$4.1  million  for fiscal  1997  compared  to $2.8  million for fiscal 1996 as a
result of the Company's  termination of its S Corporation status effective March
31, 1996. Net income for fiscal 1997 increased $333,000, or 4.5 percent over pro
forma net income for fiscal 1996.  This  increase  resulted from the decrease in
income  before  income tax expense of $70,000,  and by the $404,000  decrease in
income tax expense in fiscal  1997 from the pro forma  income tax  provision  in
fiscal 1996.

FINANCIAL CONDITION

Total assets at October 31, 1998 were $32.8 million, a decrease of $2.4 million,
or 6.8 percent  from  October 31,  1997.  This  decrease  was  primarily  due to
management's efforts to decrease  inventories,  which resulted in a $2.1 million
reduction in inventories.

Total  stockholders'  equity at October 31, 1998 decreased $1.4 million,  or 4.4
percent from October 31, 1997.  This  decrease was  primarily  due to net income
retained,  offset by the repurchase of approximately $9 million of the Company's
common stock.


                                       18
<PAGE>



                            OPTICAL CABLE CORPORATION
                 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
                OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)


LIQUIDITY AND CAPITAL RESOURCES

The  Company's  primary  capital  needs  have been to (i) fund  working  capital
requirements, (ii) repay indebtedness, (iii) purchase property and equipment for
expansion,  (iv) repurchase its common stock and (v) fund  distributions  to its
previously sole stockholder  primarily to satisfy his tax liabilities  resulting
from the Company's S Corporation  status,  which was terminated  March 31, 1996.
The Company's primary sources of financing have been cash from operations,  bank
borrowings and proceeds from the initial public offering of the Company's common
stock.  The Company  believes that its cash flow from  operations  and available
lines of credit will be adequate  to fund its  operations  for at least the next
twelve months.

Under a loan  agreement  with its bank dated April 27,  1997,  as  amended,  the
Company has a $5 million secured  revolving line of credit available for general
corporate  purposes  as well as a $10  million  secured  line of  credit to fund
potential  acquisitions,  mergers  or joint  ventures.  The lines of credit  are
equally and  ratably  secured by the  Company's  accounts  receivable,  contract
rights, inventory,  furniture and fixtures,  machinery and equipment and general
intangibles.  The lines of credit  will  expire on  February  28,  1999,  unless
renewed or  extended.  As of the date  hereof,  the  Company  has no  additional
material sources of financing.

The Company's  Board of Directors  has  authorized  the  repurchase of up to $10
million  of the  Company's  common  stock in the  open  market  or in  privately
negotiated  transactions.  Through October 31, 1998, approximately $9 million of
common stock had been repurchased by the Company under this authorization.

Cash flows from operations  were  approximately  $9.6 million,  $4.0 million and
$4.1  million  in fiscal  1998,  1997 and 1996,  respectively.  Cash  flows from
operations  in fiscal 1998 were  primarily  provided by  operating  income and a
decrease  in  inventory  of $2.1  million.  In 1998,  the  Company  reduced  its
inventory of optical fiber due to anticipated  continued reductions in raw fiber
prices.  For fiscal 1997, cash flows from operations were primarily  provided by
operating  income,  offset  by an  increase  in  trade  accounts  receivable  of
$552,000,  an increase in  inventory  of $1.8 million and a decrease in accounts
payable and accrued  expenses of $2.3 million.  For fiscal 1996, cash flows from
operations were primarily provided by operating income, offset by an increase in
trade  accounts  receivable of $3.4 million and an increase in inventory of $4.2
million.

Net cash used in investing activities was for expenditures related to facilities
and equipment  and was  $622,000,  $3.6 million and $3.1 million in fiscal 1998,
1997  and  1996,  respectively.  The  Company's  expansion  of its  headquarters
facilities was completed in fiscal 1997.

Net cash provided by (used in) financing  activities was $(8.8) million,  $(1.1)
million and $193,000 in fiscal 1998, 1997 and 1996,  respectively.  The net cash
used in financing  activities in fiscal 1998 consisted of a repurchase of common
stock in the amount of $9 million, offset by proceeds received from the exercise
of employee stock options of $198,000. The net cash used in financing activities
in fiscal 1997  consisted of repayment of debt  outstanding  under the Company's
lines of credit of $1.1  million  compared  to an increase of $794,000 in fiscal
1996. The net cash provided by financing activities in fiscal 1996 also included
net proceeds from the issuance of common stock of $5.6  million,  offset by $6.2
million in cash  distributions to the Company's  previously sole stockholder for
payment of his income  taxes with  respect to the taxable  income of the Company
prior to the termination of the Company's S Corporation status.


                                       19
<PAGE>



                            OPTICAL CABLE CORPORATION
                 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
                OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)


DERIVATIVES

The Company does not use derivatives or off-balance  sheet  instruments  such as
future contracts, forward obligations, interest rate swaps, or option contracts.

YEAR 2000

The "Year 2000" problem will affect many computers and other electronic  devices
that are not  programmed  to  properly  recognize  a year that  begins with "20"
instead of "19." Some devices may recognize dates on or after January 1, 2000 as
a date during the 1900s, or may not recognize the date at all. If not corrected,
many devices could fail or create erroneous results.

Since 1997, the Company has been actively assessing,  planning and responding to
the risks to the Company  created by the Year 2000  problem.  In  assessing  the
risks, the Company has focused on both (i) its internal  information  technology
("IT") and non-IT systems,  including, but not limited to, computer hardware and
software,  manufacturing  equipment,  printers,  facsimile  machines,  and other
control and accounting devices,  and (ii) its interfaces with third parties with
which the Company has material relationships,  such as suppliers,  customers and
financial institutions.

The Company has completed its assessment  and response  planning with respect to
its internal IT and non-IT systems.  Additionally, the Company has substantially
completed necessary remediation measures with respect to those internal systems.
The Company's  remediation has included  updating various computer  hardware and
software and printers to be Year 2000 compliant. The Company has also determined
that the Year  2000  problem  will not have a  material  adverse  affect  on its
manufacturing machinery. To date, the Company has expended less than $100,000 on
its  remediation  measures and believes  future  remediation  expenditures  with
respect to its  internal  systems to be less than  $50,000.  With respect to the
Company's  internal  systems,  the Company believes it will complete its planned
remediation  and any  testing in time to ensure the Year 2000  problem  will not
have a material adverse affect on the Company or its business.  The Company does
not believe  contingency  plans are necessary  for its internal  systems at this
time.

The Company has completed its  assessment of potential  Year 2000 problems which
may arise from  failures of third  parties to be Year 2000  compliant.  However,
many of the  Company's  suppliers  and  customers are still engaged in executing
their Year 2000  readiness  efforts and, as a result,  the Company  cannot fully
evaluate the Year 2000 risks to its supply chain and its  distribution  channels
at this time. The Company's  assessment efforts included sending  questionnaires
to major third party suppliers and reviewing  responses,  and taking other steps
to assess risks as deemed appropriate.

The  Company  has not been made aware of any Year 2000  issues of third  parties
that are  expected to be  unresolved  prior to December  31, 1999 and that would
have a material  adverse  effect on the  Company.  Nonetheless,  the  Company is
considering contingency plans, as appropriate, including relying on raw material
inventory on hand and identification of alternative suppliers.  The Company will
continue  to monitor  the Year 2000  status of third  parties  with which it has
material  relationships to minimize its risk from failures of such parties to be
Year 2000 compliant.


                                       20
<PAGE>



                            OPTICAL CABLE CORPORATION
                 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
                OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)


The most likely  worst case  scenario  for the Company  with respect to the Year
2000 problem is the failure of a supplier,  including an energy supplier,  to be
Year 2000 compliant  such that its supply of needed  products or services to the
Company's manufacturing facility is interrupted  temporarily.  This could result
in the Company not being able to produce fiber optic cable for a period of time,
which in turn could result in lost sales and gross profit.

While the Company  believes that it is taking the necessary steps to resolve its
Year 2000 issues in a timely manner,  there can be no assurance that the Company
will not have any Year 2000 problems.  If any such problems  occur,  the Company
will work to solve them as quickly as possible. At present, the Company does not
expect  that such  problems  related  to the  Company's  internal  IT and non-IT
systems  will have a  material  adverse  affect on its  business.  The  failure,
however, of one or more of the Company's major suppliers, customers or financial
institutions to be Year 2000 compliant  could have a material  adverse effect on
the Company.

NEW ACCOUNTING STANDARDS

SFAS No. 130

In June 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income. SFAS No.
130 establishes  standards for reporting and display of comprehensive income and
its components in a full set of general purpose financial  statements.  SFAS No.
130 was issued to address  concerns  over the practice of reporting  elements of
comprehensive income directly in equity.

This  Statement  requires  all items that are  required to be  recognized  under
accounting  standards as  components  of  comprehensive  income be reported in a
financial  statement  that is  displayed  in equal  prominence  with  the  other
financial  statements.  It does not require a specific format for that financial
statement but requires that an enterprise  display an amount  representing total
comprehensive income for the period in that financial statement.

SFAS No. 130 is  applicable to all entities that provide a full set of financial
statements.  Enterprises that have no items of other comprehensive income in any
period presented are excluded from the scope of this Statement.

SFAS No. 130 is effective for both interim and annual  periods  beginning  after
December 15, 1997. Comparative financial statements provided for earlier periods
are required to be reclassified to reflect the provisions of this Statement. The
adoption  of SFAS No. 130 during the 1998 fiscal year did not have any effect on
current or prior period financial statement displays presented by the Company.

SFAS No. 131

In June 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards  No.  131,  Disclosures  about  Segments  of an
Enterprise and Related Information.  SFAS No. 131 establishes  standards for the
way  public  business  enterprises  are to report  information  about  operating
segments in annual financial statements and requires those enterprises to report
selected  information  about  operating


                                       21
<PAGE>



                            OPTICAL CABLE CORPORATION
                 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
                OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)


segments  in  interim  financial   reports  issued  to  shareholders.   It  also
establishes  standards  for related  disclosures  about  products and  services,
geographic areas and major customers.

SFAS No. 131 is effective for financial  statements for periods  beginning after
December 15, 1997. In the initial year of application,  comparative  information
for earlier years is to be restated,  unless it is  impracticable to do so. SFAS
No. 131 need not be applied to interim financial  statements in the initial year
of its  application,  but  comparative  information  for interim  periods in the
initial  year of  application  shall be reported  in  financial  statements  for
interim periods in the second year of  application.  The Company will adopt SFAS
No. 131 as of November  1, 1998.  It is not  anticipated  that SFAS No. 131 will
have any  material  effect  on  current  or  prior  period  segment  disclosures
presented by the Company.


                                       22
<PAGE>


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                            OPTICAL CABLE CORPORATION
                                    INDEX TO
                              FINANCIAL STATEMENTS
                        AND FINANCIAL STATEMENT SCHEDULES


<TABLE>
<CAPTION>
                                                                              PAGE
                                                                              ----
<S>                                                                             <C>
FINANCIAL STATEMENTS:

Independent Auditors' Report .................................................. 24

Balance Sheets as of October 31, 1998 and 1997................................. 25

Statements of Income for the Years Ended October 31, 1998, 1997 and 1996....... 26

Statements of Stockholders' Equity for the Years Ended October 31, 1998, 1997
and 1996....................................................................... 27

Statements of Cash Flows for the Years Ended October 31, 1998, 1997 and 1996... 28

Notes to Financial Statements.................................................. 29


FINANCIAL STATEMENT SCHEDULES:

No financial statement schedules have been included since they are not required,
not  applicable,  or the  information  is  otherwise  included in the  financial
statements of the Company.

</TABLE>








                                       23
<PAGE>




                          INDEPENDENT AUDITORS' REPORT


The Board of Directors and Stockholders
Optical Cable Corporation:

We have audited the accompanying  balance sheets of Optical Cable Corporation as
of  October  31,  1998  and  1997,   and  the  related   statements  of  income,
stockholders'  equity,  and cash  flows for each of the years in the  three-year
period ended October 31, 1998. These financial statements are the responsibility
of the  Company's  management.  Our  responsibility  is to express an opinion on
these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Optical Cable Corporation as of
October 31, 1998 and 1997,  and the results of its operations and its cash flows
for each of the years in the  three-year  period  ended  October  31,  1998,  in
conformity with generally accepted accounting principles.


                                                       KPMG LLP

Roanoke, Virginia
December 11, 1998




                                       24
<PAGE>


                            OPTICAL CABLE CORPORATION
                                 Balance Sheets
                            October 31, 1998 and 1997

<TABLE>
<CAPTION>
                                                                                                  OCTOBER 31,
                                                                                      ----------------------------------
                                     ASSETS                                               1998                 1997
                                                                                      --------------     ---------------
<S>                                                                                     <C>                 <C>
Current assets:
    Cash and cash equivalents                                                           $ 1,122,277         $   985,807
    Trade accounts receivable, net of allowance for doubtful
       accounts of $311,500 in 1998 and $307,400 in 1997                                 10,012,699           9,931,276
    Other receivables                                                                       295,199             540,102
    Due from employees                                                                        5,589               3,534
    Inventories                                                                           9,967,012          12,019,443
    Prepaid expenses                                                                         95,766             121,046
    Deferred income taxes                                                                   212,738              81,484
                                                                                        -----------         -----------
            Total current assets                                                         21,711,280          23,682,692

Other assets, net                                                                            33,950              50,953
Property and equipment, net                                                              11,083,921          11,480,433
                                                                                        ===========         ===========
            Total assets                                                                $32,829,151         $35,214,078
                                                                                        ===========         ===========


                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Accounts payable and accrued expenses                                               $ 1,952,360         $ 2,593,256
    Accrued compensation and payroll taxes                                                  656,028             612,736
    Income taxes payable                                                                    111,449             564,999
                                                                                        -----------         -----------
            Total current liabilities                                                     2,719,837           3,770,991

Deferred income taxes                                                                       118,121              64,382
                                                                                        -----------         -----------
            Total liabilities                                                             2,837,958           3,835,373
                                                                                        -----------         -----------

Stockholders' equity:
    Preferred stock, no par value, authorized 1,000,000 shares;
       none issued and outstanding                                                               --                  --
    Common stock, voting; no par value, authorized 100,000,000
       shares in 1998 and 50,000,000 shares in 1997; issued and
       outstanding 37,879,036 shares in 1998 and 38,675,416
       shares in 1997                                                                     9,786,281          18,594,116
    Paid-in capital                                                                         150,359                  --
    Retained earnings                                                                    20,054,553          12,784,589
                                                                                        -----------         -----------
            Total stockholders' equity                                                   29,991,193          31,378,705

Commitments and contingencies
                                                                                        ===========         ===========
            Total liabilities and stockholders' equity                                  $32,829,151         $35,214,078
                                                                                        ===========         ===========
</TABLE>


See accompanying notes to financial statements.



                                       25
<PAGE>


                            OPTICAL CABLE CORPORATION
                              Statements of Income
                   Years Ended October 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                                                   YEARS ENDED OCTOBER 31,
                                                              ----------------------------------------------------------
                                                                    1998                 1997                 1996
                                                              ----------------     ----------------     ----------------
<S>                                                             <C>                  <C>                  <C>
Net sales                                                       $ 50,588,893         $ 52,188,850         $ 45,152,299
Cost of goods sold                                                29,329,822           30,612,690           24,907,373
                                                                ------------         ------------         ------------
            Gross profit                                          21,259,071           21,576,160           20,244,926

Selling, general and administrative expenses                       9,939,258            9,572,061            8,415,798
                                                                ------------         ------------         ------------
            Income from operations                                11,319,813           12,004,099           11,829,128

Other income (expense):
    Interest income                                                   56,260               15,351               94,888
    Interest expense                                                    (505)             (17,930)              (9,595)
    Other, net                                                         1,891              (44,580)             112,988
                                                                ------------         ------------         ------------
            Other income (expense), net                               57,646              (47,159)             198,281
                                                                ------------         ------------         ------------
            Income before income tax expense                      11,377,459           11,956,940           12,027,409

Income tax expense                                                 4,107,495            4,149,794            2,806,849
                                                                ============         ============         ============
            Net income                                          $  7,269,964         $  7,807,146         $  9,220,560
                                                                ============         ============         ============

Pro forma income data (unaudited):
    Net income before pro forma income
       tax provision, as reported                                                                         $  9,220,560
    Pro forma income tax provision                                                                           1,746,513
                                                                                                          ============
            Pro forma net income                                                                          $  7,474,047
                                                                                                          ============

Earnings per share:
    Earnings per common share (unaudited
       pro forma for 1996)                                      $       .190         $       .202         $       .190
                                                                ============         ============         ============

    Earnings per common share - assuming
       dilution (unaudited pro forma for 1996)                  $       .188         $       .200         $       .189
                                                                ============         ============         ============
</TABLE>


See accompanying notes to financial statements.




                                       26
<PAGE>




                            OPTICAL CABLE CORPORATION
                       Statements of Stockholders' Equity
                   Years Ended October 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                              COMMON STOCK                                                   TOTAL
                                    --------------------------------     PAID-IN          RETAINED       STOCKHOLDERS'
                                       SHARES            AMOUNT          CAPITAL          EARNINGS           EQUITY
                                    --------------   ---------------   -------------   ---------------   ---------------
<S>                                    <C>            <C>              <C>              <C>               <C>
Balances at October 31, 1995           36,000,000     $        596     $    767,849     $ 14,183,340      $ 14,951,785

Net income - five months ended
    March 31, 1996                             --               --               --        4,243,117         4,243,117
Issuance of common stock for
    cash ($2.50 per share, less
    issuance costs of $1,139,326)       2,675,416        5,549,214               --               --         5,549,214
Cash distributions to previously
    sole stockholder                           --               --               --       (6,150,000)       (6,150,000)
Recapitalization                               --       13,044,306         (767,849)     (12,276,457)               --
Net income - seven months
    ended October 31, 1996                     --               --               --        4,977,443         4,977,443
                                     ------------     ------------     ------------     ------------      ------------

Balances at October 31, 1996           38,675,416       18,594,116               --        4,977,443        23,571,559

Net income                                     --               --               --        7,807,146         7,807,146
                                     ------------     ------------     ------------     ------------      ------------

Balances at October 31, 1997           38,675,416       18,594,116               --       12,784,589        31,378,705

Exercise of employee stock
    options ($2.50 per share)              79,350          198,375               --               --           198,375
Tax benefit of disqualifying
    disposition of stock options
    exercised                                  --               --          150,359               --           150,359
Repurchase of common stock
    (at cost)                            (875,730)      (9,006,210)              --               --        (9,006,210)
Net income                                     --               --               --        7,269,964         7,269,964
                                     ============     ============     ============     ============      ============
Balances at October 31, 1998           37,879,036     $  9,786,281     $    150,359     $ 20,054,553      $ 29,991,193
                                     ============     ============     ============     ============      ============
</TABLE>


See accompanying notes to financial statements.




                                       27
<PAGE>




                            OPTICAL CABLE CORPORATION
                            Statements of Cash Flows
                   Years Ended October 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                                                     YEARS ENDED OCTOBER 31,
                                                                        ------------------------------------------------
                                                                            1998             1997             1996
                                                                        --------------   --------------  ---------------
<S>                                                                     <C>               <C>               <C>
Cash flows from operating activities:
    Net income                                                          $ 7,269,964       $ 7,807,146       $ 9,220,560
    Adjustments to reconcile net income to net cash
      provided by operating activities:
        Depreciation and amortization                                       787,674           706,076           533,445
        Bad debt expense (recovery)                                          88,005           (10,778)          266,366
        Deferred income taxes                                               (77,515)           88,975          (106,077)
        Loss on disposal of property and equipment                            2,669                --                --
        (Increase) decrease in:
          Trade accounts receivable                                        (169,428)         (552,022)       (3,447,954)
          Other receivables                                                 244,903          (186,061)         (255,744)
          Due from employees                                                 (2,055)           (2,059)            1,750
          Inventories                                                     2,052,431        (1,758,006)       (4,228,395)
          Prepaid expenses                                                   25,280           (56,183)           21,690
          Other assets                                                           --                39           116,237
        Increase (decrease) in:
          Accounts payable and accrued expenses                            (395,330)       (2,260,416)        1,881,379
          Accrued compensation and payroll taxes                             43,292           (63,989)         (154,472)
          Income taxes payable                                             (303,191)          327,073           237,926
                                                                        -----------       -----------       -----------
            Net cash provided by operating activities                     9,566,699         4,039,795         4,086,711
                                                                        -----------       -----------       -----------

Cash flows from investing activities:
    Purchase of property and equipment                                     (622,394)       (3,628,727)       (3,137,421)
                                                                        -----------       -----------       -----------
            Net cash used in investing activities                          (622,394)       (3,628,727)       (3,137,421)
                                                                        -----------       -----------       -----------

Cash flows from financing activities:
    Net borrowings (payments) on notes payable                                   --        (1,103,000)          794,000
    Proceeds from issuance of common stock, net of
      issuance costs                                                             --                --         5,549,214
    Cash distributions to previously sole stockholder                            --                --        (6,150,000)
    Repurchase of common stock                                           (9,006,210)               --                --
    Proceeds from exercise of employee stock options                        198,375                --                --
                                                                        -----------       -----------       -----------
            Net cash provided by (used in) financing activities          (8,807,835)       (1,103,000)          193,214
                                                                        -----------       -----------       -----------
            Net increase (decrease) in cash and cash equivalents            136,470          (691,932)        1,142,504

Cash and cash equivalents at beginning of year                              985,807         1,677,739           535,235
                                                                        ===========       ===========       ===========
Cash and cash equivalents at end of year                                $ 1,122,277       $   985,807       $ 1,677,739
                                                                        ===========       ===========       ===========

Supplemental Disclosure of Cash Flow Information:
    Cash payments for interest                                          $       505       $    17,930       $     9,595
                                                                        ===========       ===========       ===========

    Income taxes paid                                                   $ 4,488,201       $ 3,733,746       $ 2,675,000
                                                                        ===========       ===========       ===========

    Noncash investing and financing activities:
      Capital expenditures accrued in accounts payable                  $        --       $   245,566       $   880,659
                                                                        ===========       ===========       ===========

      Income tax benefit from exercise of stock options                 $   150,359       $        --       $        --
                                                                        ===========       ===========       ===========
</TABLE>


See accompanying notes to financial statements.




                                       28
<PAGE>





                            OPTICAL CABLE CORPORATION
                          Notes to Financial Statements
                   Years Ended October 31, 1998, 1997 and 1996


(1)  DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     (A)  DESCRIPTION OF BUSINESS

          Optical Cable  Corporation  (the Company)  manufactures  and markets a
          broad range of fiber optic cables for "high bandwidth" transmission of
          data,  video and audio  communications  over moderate  distances.  The
          Company's  fiber  optic  cables  are  sold  nationwide  and in over 68
          foreign countries (also see note 9).

     (B)  CASH EQUIVALENTS

          At October 31, 1998 and 1997, cash  equivalents  consist of $1,381,790
          and $763,000,  respectively,  of overnight  repurchase  agreements and
          money market  mutual  funds.  For purposes of the  statements  of cash
          flows,  the Company  considers all highly liquid debt instruments with
          original maturities of three months or less to be cash equivalents.

     (C)  INVENTORIES

          Inventories of raw materials and production supplies are stated at the
          lower  of  cost  (specific   identification  for  optical  fibers  and
          first-in,  first-out for other raw materials and production  supplies)
          or market.  Inventories  of work in  process  and  finished  goods are
          stated at average cost, which includes raw materials, direct labor and
          manufacturing overhead.

     (D)  PROPERTY AND EQUIPMENT

          Property  and   equipment  are  stated  at  cost.   Depreciation   and
          amortization are provided for using both  straight-line  and declining
          balance  methods  over  the  estimated  useful  lives  of the  assets.
          Estimated  useful  lives  are  thirty-nine  years  for  buildings  and
          improvements  and five to seven years for  machinery and equipment and
          furniture and fixtures.

     (E)  REVENUE RECOGNITION

          Revenue is recognized  at the time of product  shipment or delivery to
          the customer, based on shipping terms.

     (F)  INCOME TAXES

          Through  March 31,  1996,  the  Company was not subject to federal and
          state  income  taxes since it had  elected,  under  provisions  of the
          Internal  Revenue  Code, to be taxed as an S  Corporation.  In lieu of
          corporation  income taxes,  the  stockholders  of an S Corporation are
          taxed on their proportionate share of the Company's taxable income.




                                       29
<PAGE>





                            OPTICAL CABLE CORPORATION
                    Notes to Financial Statements (Continued)
                   Years Ended October 31, 1998, 1997 and 1996


          In  connection  with  the  closing  of the  Company's  initial  public
          offering  (see note 11),  the  Company  terminated  its status as an S
          Corporation effective March 31, 1996 and became subject to federal and
          state income taxes. Accordingly,  the statement of income for the year
          ended October 31, 1996 includes  income taxes from April 1, 1996,  and
          for informational purposes, the statement of income for the year ended
          October  31, 1996  includes a pro forma  adjustment  for income  taxes
          which would have been  recorded  if the  Company  had been  subject to
          income taxes for the entire fiscal year presented.

          Effective  March 31, 1996,  income taxes are  accounted  for under the
          asset and liability  method.  Deferred tax assets and  liabilities are
          recognized for the future tax consequences attributable to differences
          between the financial  statement  carrying  amounts of existing assets
          and liabilities and their  respective tax bases and operating loss and
          tax credit  carryforwards.  Deferred  tax assets and  liabilities  are
          measured  using enacted tax rates  expected to apply to taxable income
          in the years in which those  temporary  differences are expected to be
          recovered   or  settled.   The  effect  on  deferred  tax  assets  and
          liabilities  of a change in tax rates is  recognized  in income in the
          period that includes the enactment date.

     (G)  IMPAIRMENT OF LONG-LIVED  ASSETS AND LONG-LIVED  ASSETS TO BE DISPOSED
          OF

          The  Company  reviews  long-lived  assets  and  certain   identifiable
          intangibles for impairment whenever events or changes in circumstances
          indicate that the carrying  amount of an asset may not be recoverable.
          Recoverability  of  assets  to be  held  and  used  is  measured  by a
          comparison of the carrying amount of an asset to future net cash flows
          expected to be generated by the asset.  If such assets are  considered
          to be impaired,  the  impairment  to be  recognized is measured by the
          amount by which the  carrying  amount of the  assets  exceed  the fair
          value of the  assets.  Assets to be  disposed  of are  reported at the
          lower of the carrying amount or fair value less costs to sell.

     (H)  STOCK OPTION PLAN

          Prior to November 1, 1996, the Company  accounted for its stock option
          plan in accordance with the provisions of Accounting  Principles Board
          ("APB") Opinion No. 25, Accounting for Stock Issued to Employees,  and
          related  interpretations.  As  such,  compensation  expense  would  be
          recorded on the date of grant only if the current  market price of the
          underlying stock exceeded the exercise price. On November 1, 1996, the
          Company adopted SFAS No. 123, Accounting for Stock-Based Compensation,
          which permits entities to recognize as expense over the vesting period
          the  fair  value  of all  stock-based  awards  on the  date of  grant.
          Alternatively,  SFAS No. 123 also allows entities to continue to apply
          the  provisions of APB Opinion No. 25 and provide pro forma net income
          and pro forma earnings per share disclosures for employee stock option
          grants made in 1995 and future years as if the fair-value-based method
          defined in SFAS No. 123 had been  applied.  The Company has elected to
          continue to apply the provisions of APB Opinion No. 25 and provide the
          pro forma disclosure provisions of SFAS No. 123.




                                       30
<PAGE>





                            OPTICAL CABLE CORPORATION
                    Notes to Financial Statements (Continued)
                   Years Ended October 31, 1998, 1997 and 1996


     (I)  EARNINGS PER SHARE

          Effective November 1, 1997, the Company adopted Statement of Financial
          Accounting  Standards No. 128, Earnings per Share (SFAS No. 128). SFAS
          No. 128  establishes  standards for computing and presenting  earnings
          per share  (EPS) and  applies to entities  with  publicly  held common
          stock or potential common stock. SFAS No. 128 simplifies the standards
          for computing  earnings per share  previously found in APB Opinion No.
          15, Earnings per Share, and makes them comparable to international EPS
          standards.  It  replaces  the  presentation  of  primary  EPS  with  a
          presentation of basic EPS. It also requires dual presentation of basic
          and diluted EPS on the face of the income  statement  for all entities
          with complex capital  structures and requires a reconciliation  of the
          numerator  and  denominator  of  the  basic  EPS  computation  to  the
          numerator and denominator of the diluted EPS computation.

          Basic  EPS  excludes  dilution  and is  computed  by  dividing  income
          available to common  stockholders  by the  weighted-average  number of
          common  shares  outstanding  for the period.  Diluted EPS reflects the
          potential  dilution that could occur if securities or other  contracts
          to issue common stock were exercised or converted into common stock or
          resulted  in the  issuance  of common  stock  that then  shared in the
          earnings of the entity.

          Unaudited  pro forma  earnings  per share was computed by dividing pro
          forma net income by the pro forma  weighted  average  number of common
          shares   outstanding   during  the  period   (as   adjusted   for  the
          recapitalization)  and by  deeming  to be  outstanding  the  number of
          shares  (1,800,000)  the  Company  would  have  needed to issue at the
          initial  public  offering  price per share ($2.50) to pay a $1 million
          cash  distribution to the previously sole stockholder in December 1995
          and  a  $3.5  million  cash   distribution   to  the  previously  sole
          stockholder out of the proceeds of the initial public offering.

     (J)  USE OF ESTIMATES

          The  preparation of financial  statements in conformity with generally
          accepted  accounting  principles requires management to make estimates
          and  assumptions  that  affect  the  reported  amounts  of assets  and
          liabilities and the disclosure of contingent assets and liabilities at
          the date of the  financial  statements  and the  reported  amounts  of
          revenues and expenses  during the  reporting  period.  Actual  results
          could differ from these estimates.

     (K)  RECLASSIFICATIONS

          Certain  reclassifications  have  been  made in the  notes to the 1997
          financial statements to conform with the 1998 presentation.




                                       31
<PAGE>





                            OPTICAL CABLE CORPORATION
                    Notes to Financial Statements (Continued)
                   Years Ended October 31, 1998, 1997 and 1996


(2)  ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE

     A summary of changes in the allowance for doubtful accounts  receivable for
     the years ended October 31, 1998, 1997 and 1996 follows:

<TABLE>
<CAPTION>
                                                                YEARS ENDED OCTOBER 31,
                                                  ----------------------------------------------------
                                                      1998               1997               1996
                                                  --------------     --------------    ---------------
<S>                                                 <C>                <C>               <C>
Balance at beginning of year                        $ 307,400          $ 300,000         $ 200,000
Bad debt expense (recovery)                            88,005            (10,778)          266,366
Losses charged to allowance                           (90,147)           (26,592)         (176,512)
Recoveries added to allowance                           6,242             44,770            10,146
                                                    ---------          ---------         ---------

Balance at end of year                              $ 311,500          $ 307,400         $ 300,000
                                                    =========          =========         =========
</TABLE>


(3)  INVENTORIES

     Inventories at October 31, 1998 and 1997 consist of the following:

<TABLE>
<CAPTION>
                                                                           OCTOBER 31,
                                                               ----------------------------------
                                                                    1998               1997
                                                               ---------------    ---------------
<S>                                                              <C>                <C>
Finished goods                                                   $ 4,152,094        $ 4,854,697
Work in process                                                    1,896,858          1,976,970
Raw materials                                                      3,873,824          5,125,044
Production supplies                                                   44,236             62,732
                                                                 -----------        -----------

                                                                 $ 9,967,012        $12,019,443
                                                                 ===========        ===========
</TABLE>


(4)  PROPERTY AND EQUIPMENT

     Property  and  equipment  at  October  31,  1998 and 1997  consists  of the
     following:

<TABLE>
<CAPTION>
                                                                            OCTOBER 31,
                                                                -----------------------------------
                                                                    1998                1997
                                                                ---------------    ----------------
<S>                                                              <C>                 <C>
Land                                                             $  2,745,327        $  2,745,327
Building and improvements                                           6,888,444           6,853,527
Machinery and equipment                                             5,007,050           4,783,764
Furniture and fixtures                                                729,341             732,963
Construction in progress                                               69,938              33,619
                                                                 ------------        ------------

          Total property and equipment, at cost                    15,440,100          15,149,200

Less accumulated amortization and depreciation                     (4,356,179)         (3,668,767)
                                                                 ------------        ------------

          Property and equipment, net                            $ 11,083,921        $ 11,480,433
                                                                 ============        ============
</TABLE>



                                       32
<PAGE>





                            OPTICAL CABLE CORPORATION
                    Notes to Financial Statements (Continued)
                   Years Ended October 31, 1998, 1997 and 1996

(5)  NOTES PAYABLE

     Under a loan agreement with its bank dated April 27, 1997, as amended,  the
     Company has a $5 million  secured  revolving  line of credit  available for
     general corporate purposes and a $10 million secured line of credit to fund
     potential acquisitions, mergers or joint ventures. The lines of credit bear
     interest at 1.50 percent  above the monthly  LIBOR rate (6.72 percent as of
     October 31,  1998) and are equally  and  ratably  secured by the  Company's
     accounts receivable,  contract rights,  inventory,  furniture and fixtures,
     machinery and equipment and general  intangibles.  The lines of credit will
     expire on February 28, 1999, unless renewed or extended. While the lines of
     credit do not require a compensating balance that legally restricts the use
     of cash amounts, at the bank's request,  the Company has agreed to maintain
     an unrestricted target cash balance of $125,000.

(6)  LEASES

     In August 1994, the Company  entered into a four-year  operating  lease for
     computerized  mailing and shipping  equipment with an unrelated party. Rent
     expense under this lease amounted to $21,527 for the year ended October 31,
     1998, and $25,030 for the years ended October 31, 1997 and 1996.

(7)  RELATED PARTY AGREEMENTS

     Since February 1, 1995, the Company has entered into employment  agreements
     with the  individual  who is the  Company's  Chairman,  President and Chief
     Executive  Officer and its previously sole stockholder which typically have
     a term of less than two years.  Annual  compensation  under the  agreements
     consists  of salary  payments  equal to 1 percent  of the  previous  fiscal
     year's net sales and provides for sales  commissions  equal to 1 percent of
     the positive difference between the current fiscal year's net sales and the
     prior fiscal year's net sales.  Compensation  under this agreement amounted
     to $521,889,  $521,889  and $451,523 for the years ended  October 31, 1998,
     1997 and 1996, respectively.

(8)  EMPLOYEE BENEFITS

     The Company's  independently  administered  self-insurance program provides
     health  insurance   coverage  for  employees  and  their  dependents  on  a
     cost-reimbursement  basis. Under the program,  the Company is obligated for
     claims payments.  A stop loss insurance contract executed with an insurance
     carrier  covers  claims in excess of $35,000  per  covered  individual  and
     $763,255 in the  aggregate  per year.  During the years  ended  October 31,
     1998,  1997 and 1996,  total  claims  expense  of  $725,535,  $872,582  and
     $876,481, respectively, was incurred, which represents claims processed and
     an estimate for claims incurred but not reported.

     Effective January 1, 1994, the Company adopted a 401(k) retirement  savings
     plan. To become eligible for the plan, an employee must complete six months
     of service and be at least 21 years of age. The plan allows participants to
     contribute  through  salary  reduction  up to 7  percent  of  their  annual
     compensation  on a pretax  basis  during the 1998  fiscal  year and up to 6
     percent of their annual




                                       33
<PAGE>





                            OPTICAL CABLE CORPORATION
                    Notes to Financial Statements (Continued)
                   Years Ended October 31, 1998, 1997 and 1996


     compensation  on a pretax  basis  during  the 1997 and 1996  fiscal  years.
     Company  matching  contributions  are two  dollars  for  every  one  dollar
     contributed  by an  employee  up to 4  percent  of  the  employees'  annual
     compensation.  The  Company  made  matching  contributions  to the  plan of
     $353,096,  $313,365 and $233,072 for the years ended October 31, 1998, 1997
     and 1996, respectively.

     The Company and its previously sole stockholder  adopted on March 1, 1996 a
     stock  incentive  plan which is called the Optical Cable  Corporation  1996
     Stock Incentive Plan (the "Plan").  The Plan is intended to provide a means
     for employees to increase their personal financial interest in the Company,
     thereby  stimulating the efforts of these employees and strengthening their
     desire to remain with the Company through the use of stock incentives.  The
     Company has reserved 4,000,000 shares of common stock for issuance pursuant
     to  incentive  awards  under the Plan.  At  October  31,  1998,  there were
     3,430,850  additional  shares available for grant under the Plan.  Although
     not  required  under  the Plan,  stock  options  granted  to date have been
     granted  at not less  than  fair  market  value on the date of  grant.  The
     options have terms  ranging from 8.75 to 10 years and vest 25 percent after
     two years,  50 percent  after three years,  75 percent after four years and
     100 percent after five years.

     The per  share  weighted-average  estimated  fair  value of  stock  options
     granted during 1997 and 1996 was $9.38 and $2.18, respectively, on the date
     of grant using the  Black-Scholes  option-pricing  model with the following
     weighted-average  assumptions:  1997 - expected cash dividend yield of zero
     percent,  risk-free interest rate of 6.08 percent,  expected  volatility of
     85.5  percent and an  expected  life of 8.75  years;  1996 - expected  cash
     dividend  yield of zero percent,  risk-free  interest rate of 6.28 percent,
     expected volatility of 85.5 percent and an expected life of 10 years.

     The Company  applies APB  Opinion  No. 25 in  accounting  for its Plan and,
     accordingly, no compensation cost has been recognized for its stock options
     in the financial  statements.  Had compensation cost for the Company's Plan
     been determined consistent with SFAS No. 123, the Company's net income (pro
     forma for 1996 -  unaudited)  and  earnings per share (pro forma for 1996 -
     unaudited)  would have been  reduced to the SFAS No. 123 pro forma  amounts
     indicated below:

<TABLE>
<CAPTION>
                                                                               YEARS ENDED OCTOBER 31,
                                                                 -------------------------------------------------
                                                                     1998              1997              1996
                                                                 -------------     -------------     -------------
<S>                                                                <C>               <C>               <C>
Net income:
    As reported (pro forma for 1996 - unaudited)                   $7,269,964        $7,807,146        $7,474,047
                                                                   ==========        ==========        ==========
    Pro forma                                                      $6,926,736        $7,638,186        $7,400,134
                                                                   ==========        ==========        ==========
</TABLE>


<TABLE>
<CAPTION>
                                                                              YEARS ENDED OCTOBER 31,
                                                                 -------------------------------------------------
                                                                     1998              1997              1996
                                                                 -------------     -------------     -------------
<S>                                                                  <C>               <C>               <C>
Earnings per share:
    Earnings per common share:
      As reported (pro forma for 1996 - unaudited)                   $.190             $.202             $.190
                                                                     =====             =====             =====

      Pro forma                                                      $.181             $.197             $.188
                                                                     =====             =====             =====
</TABLE>




                                       34
<PAGE>





                            OPTICAL CABLE CORPORATION
                    Notes to Financial Statements (Continued)
                   Years Ended October 31, 1998, 1997 and 1996


<TABLE>
<CAPTION>
                                                                               YEARS ENDED OCTOBER 31,
                                                                 -------------------------------------------------
                                                                     1998              1997              1996
                                                                 -------------     -------------     -------------
<S>                                                                  <C>               <C>               <C>
Earnings per common share - assuming dilution:
  As reported (pro forma for 1996 - unaudited)                       $.188             $.200             $.189
                                                                     =====             =====             =====

  Pro forma                                                          $.180             $.196             $.187
                                                                     =====             =====             =====
</TABLE>


     Stock option activity during the periods indicated is as follows:

<TABLE>
<CAPTION>
                                                                              NUMBER OF          WEIGHTED-AVERAGE
                                                                                SHARES            EXERCISE PRICE
                                                                            ---------------    --------------------
<S>                                                                            <C>                   <C>
Balance at October 31, 1996                                                    442,000               $ 2.500

    Granted                                                                    254,000                11.125
    Forfeited                                                                  (32,500)                6.348
                                                                               -------

Balance at October 31, 1997                                                    663,500                 5.613

    Exercised                                                                  (79,350)                2.500
    Forfeited                                                                  (15,000)                9.400
                                                                               -------

Balance at October 31,  1998  (31,150  options  exercisable;
     341,650  options at  exercise  price of $2.50 per share
     with  remaining  contractual  life  of 7.5  years,  and
     227,500  options at exercise price of $11.125 per share
     with remaining contractual life of 7.5 years)                             569,150                 5.948
                                                                               =======
</TABLE>


(9)  BUSINESS AND CREDIT CONCENTRATIONS

     The Company provides credit,  in the normal course of business,  to various
     commercial   enterprises,    governmental   entities   and   not-for-profit
     organizations.   Concentration   of  credit  risk  with  respect  to  trade
     receivables is limited due to the Company's large number of customers.  The
     Company also  manages  exposure to credit risk  through  credit  approvals,
     credit limits and monitoring  procedures.  Management  believes that credit
     risks at October 31, 1998 and 1997 have been adequately provided for in the
     financial statements.

     For the years ended October 31, 1998, 1997 and 1996, 78 percent, 73 percent
     and 75 percent,  respectively,  of net sales were from customers located in
     the  United  States,   while  22  percent,   27  percent  and  25  percent,
     respectively,  were from  international  customers.  No foreign  geographic
     areas  accounted  for more than 10 percent of net sales for the years ended
     October 31,  1998 and 1996 while  Europe  accounted  for  approximately  10
     percent of net sales for the year ended October 31, 1997. As of October 31,
     1998 and 1997,  there were no significant  amounts  receivable from any one
     customer other than those described below.




                                       35
<PAGE>





                            OPTICAL CABLE CORPORATION
                    Notes to Financial Statements (Continued)
                   Years Ended October 31, 1998, 1997 and 1996


     For the  year  ended  October  31,  1998,  27  percent  of net  sales  were
     attributable  to  two  major  domestic  distributors.  The  combined  trade
     accounts  receivable  for these  distributors  at October 31, 1998  totaled
     approximately $2,989,000. No single customer or other distributor accounted
     for more than 5 percent of net sales for the year ended  October 31,  1998.
     As of October 31, 1998, one of these major  distributors had an outstanding
     balance   payable  to  the   Company  in  excess  of  5  percent  of  total
     stockholders' equity in the amount of approximately $1,630,000.

     For the  year  ended  October  31,  1997,  22  percent  of net  sales  were
     attributable to two major domestic distributors. The combined related trade
     accounts  receivable  for these  distributors  at October 31, 1997  totaled
     approximately $2,265,000. No single customer or other distributor accounted
     for more than 5 percent of net sales for the year ended  October 31,  1997.
     As of October 31,  1997,  no single  customer or other  distributor  had an
     outstanding  balance payable to the Company in excess of 5 percent of total
     stockholders' equity.

     For the  year  ended  October  31,  1996,  12  percent  of net  sales  were
     attributable to one major domestic distributor.  The related trade accounts
     receivable for this  distributor at October 31, 1996 totaled  approximately
     $2,468,000. No single customer or other distributor accounted for more than
     5 percent of net sales for the year ended October 31, 1996.

(10) INCOME TAXES

     The Company  recorded a $114,045 net benefit for deferred income taxes upon
     termination of the Company's S Corporation  status. The adjustment reflects
     the net deferred  income tax asset  balance at March 31, 1996 in accordance
     with the provisions of Statement of Financial Accounting Standards No. 109,
     Accounting for Income Taxes.

     Income tax  expense for the years ended  October  31,  1998,  1997 and 1996
     consists of:

<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, 1998                                     CURRENT           DEFERRED             TOTAL
                                                             ---------------    --------------     --------------
<S>                                                            <C>                <C>                <C>
U.S. Federal                                                   $3,733,231         $  (69,192)        $3,664,039
State                                                             451,779             (8,323)           443,456
                                                               ----------         ----------         ----------

          Totals                                               $4,185,010         $  (77,515)        $4,107,495
                                                               ==========         ==========         ==========
</TABLE>


<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, 1997                                     CURRENT           DEFERRED             TOTAL
                                                             ---------------    --------------     --------------
<S>                                                            <C>                <C>                <C>
U.S. Federal                                                   $3,654,654         $   78,224         $3,732,878
State                                                             406,165             10,751            416,916
                                                               ----------         ----------         ----------

          Totals                                               $4,060,819         $   88,975         $4,149,794
                                                               ==========         ==========         ==========
</TABLE>




                                       36
<PAGE>





                            OPTICAL CABLE CORPORATION
                    Notes to Financial Statements (Continued)
                   Years Ended October 31, 1998, 1997 and 1996


<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, 1996                                     CURRENT           DEFERRED             TOTAL
                                                             ---------------    --------------     --------------
<S>                                                            <C>                <C>                <C>
U.S. Federal                                                   $2,556,601         $  (93,490)        $2,463,111
State                                                             356,325            (12,587)           343,738
                                                               ----------         ----------         ----------

          Totals                                               $2,912,926         $ (106,077)        $2,806,849
                                                               ==========         ==========         ==========
</TABLE>


     Reported  income tax expense for the years ended October 31, 1998, 1997 and
     1996 differs from the "expected" tax expense, computed by applying the U.S.
     Federal statutory income tax rate of 35 percent to income before income tax
     expense, as follows:

<TABLE>
<CAPTION>
                                                                               YEARS ENDED OCTOBER 31,
                                                                  -----------------------------------------------
                                                                       1998             1997            1996
                                                                  --------------   --------------  --------------
<S>                                                                 <C>              <C>             <C>
"Expected" tax expense                                              $ 3,982,111      $ 4,184,929     $ 4,209,593
Increase (reduction) in income tax expense resulting from:
    Foreign Sales Corporation benefit                                  (122,282)        (164,459)        (98,473)
    State income taxes, net of federal benefits                         288,822          254,592         215,967
    S Corporation taxable income for the five months ended
      March 31, 1997                                                         --               --      (1,485,091)
    Net deferred income tax asset balance at March 31, 1997                  --               --        (114,045)
    Other differences, net                                              (41,156)        (125,268)         78,898
                                                                    -----------      -----------     -----------

          Reported income tax expense                               $ 4,107,495      $ 4,149,794     $ 2,806,849
                                                                    ===========      ===========     ===========
</TABLE>


     The tax  effects of  temporary  differences  that give rise to  significant
     portions of the Company's net deferred tax asset as of October 31, 1998 and
     1997 are presented below:

<TABLE>
<CAPTION>
                                                                                         OCTOBER 31,
                                                                              ----------------------------------
                                                                                   1998               1997
                                                                              ---------------    ---------------
<S>                                                                              <C>                <C>
Deferred tax assets:
    Accounts receivable, due to allowance for doubtful accounts                  $ 117,205          $ 115,662
    Inventories, due to additional costs inventoried for tax
      purposes pursuant to the Tax Reform Act of 1986                               68,628             64,671
    Self-insured health care costs, due to accrual for financial
      reporting purposes                                                            41,208             45,986
    Compensated absences due to accrual for financial reporting
      purposes                                                                      37,262             25,076
                                                                                 ---------          ---------

           Total gross deferred tax assets                                         264,303            251,395
Less valuation allowance                                                                --                 --
                                                                                 ---------          ---------

           Net deferred tax assets                                                 264,303            251,395

Deferred tax liabilities:
    Plant and equipment, due to differences in depreciation and
      capital gain recognition                                                    (118,121)           (64,381)
    Other receivables, due to accrual for financial reporting purposes             (51,565)          (169,912)
                                                                                 ---------          ---------

           Total gross deferred tax liabilities                                   (169,686)          (234,293)
                                                                                 ---------          ---------

           Net deferred tax asset                                                $  94,617          $  17,102
                                                                                 =========          =========
</TABLE>


     Based on the Company's  historical and current pretax earnings,  management
     believes  that it is more likely than not that the  recorded  deferred  tax
     assets will be realized.




                                       37
<PAGE>





                            OPTICAL CABLE CORPORATION
                    Notes to Financial Statements (Continued)
                   Years Ended October 31, 1998, 1997 and 1996


(11) RECAPITALIZATION AND INITIAL PUBLIC OFFERING

     During fiscal year 1996,  the Company's  Board of Directors  authorized the
     filing of a registration  statement for a public  offering of the Company's
     common stock.  In connection  with the public  offering,  the Board and the
     previously  sole  stockholder   approved  an  increase  in  the  number  of
     authorized shares of common stock from 50,000 shares to 50,000,000  shares,
     a  recapitalization  involving an exchange of all  outstanding $1 par value
     common stock (596 shares) on a  60,403-for-1  basis for no par value common
     stock  (36,000,000  shares) and the  authorization  of 1,000,000  shares of
     preferred stock, no par value, issuable in multiple series.

     On April 1, 1996,  the  Company  completed a public  offering of  2,675,416
     shares of the Company's common stock from which it received net proceeds of
     approximately $5.5 million.

     In connection  with the  recapitalization,  paid-in capital as of March 31,
     1996 has been  reclassified to no par value common stock, and the amount of
     the undistributed  taxable S Corporation earnings remaining as of March 31,
     1996 has been reclassified to no par value common stock.

(12) FAIR VALUE OF FINANCIAL INSTRUMENTS

     Statement of Financial Accounting Standards No. 107, Disclosures About Fair
     Value of Financial  Instruments  ("SFAS No. 107"),  requires the Company to
     disclose estimated fair values of its financial  instruments.  SFAS No. 107
     defines the fair value of a financial instrument as the amount at which the
     instrument  could be exchanged  in a current  transaction  between  willing
     parties.  The carrying amounts reported in the balance sheet for cash, cash
     equivalents, trade accounts receivable, other receivables, accounts payable
     and accrued  expenses  approximate fair value because of the short maturity
     of these instruments.

(13) EARNINGS PER SHARE

     As discussed in note 1, SFAS No. 128 was adopted by the Company on November
     1, 1997.  SFAS No. 128  requires  restatement  of all prior period EPS data
     previously  presented.  The following is a reconciliation of the numerators
     and  denominators of the basic and diluted EPS computations for the periods
     presented:

<TABLE>
<CAPTION>
                                                   NET INCOME            SHARES           PER SHARE
YEAR ENDED OCTOBER 31, 1998                        (NUMERATOR)        (DENOMINATOR)         AMOUNT
                                                 -------------     ----------------   ---------------
<S>                                              <C>                <C>                <C>
Earnings per common share                        $  7,269,964        38,287,271         $      .190
                                                                                        ===========
Effect of dilutive stock options                           --           288,247
                                                 -------------      --------------

Earnings per common share -
    assuming dilution                            $  7,269,964        38,575,518         $      .188
                                                 =============      ==============      ============
</TABLE>




                                       38
<PAGE>





                            OPTICAL CABLE CORPORATION
                    Notes to Financial Statements (Continued)
                   Years Ended October 31, 1998, 1997 and 1996


<TABLE>
<CAPTION>
                                                           NET INCOME            SHARES            PER SHARE
YEAR ENDED OCTOBER 31, 1997                                (NUMERATOR)        (DENOMINATOR)          AMOUNT
                                                         ----------------    ----------------    ---------------
<S>                                                        <C>                  <C>              <C>
Earnings per common share                                  $ 7,807,146          38,675,416       $         .202
                                                                                                 ===============
Effect of dilutive stock options                                    --             341,867
                                                          -------------      --------------

Earnings per common share - assuming dilution              $ 7,807,146          39,017,283       $         .200
                                                          =============      ==============      ===============

<CAPTION>

                                                            NET INCOME         SHARES             PER SHARE
YEAR ENDED OCTOBER 31, 1996                                 (NUMERATOR)     (DENOMINATOR)           AMOUNT
                                                          -------------    --------------        ---------------
<S>                                                        <C>               <C>                 <C>
Unaudited pro forma earnings per common share              $ 7,474,047          39,360,659        $         .190
                                                                                                 ===============
Effect of dilutive stock options                                    --             247,459
                                                          -------------    --------------

Unaudited pro forma earnings per comon share -
    assuming dilution                                      $ 7,474,047          39,608,118       $         .189
                                                          ================    ================   ===============
</TABLE>


     Stock  options that could  potentially  dilute basic EPS in the future that
     were not included in the  computation of diluted EPS because to do so would
     have been antidilutive totaled 227,500 for the year ended October 31, 1998.

(14) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

     The following is a summary of the unaudited quarterly results of operations
     for the years ended October 31, 1998 and 1997:

<TABLE>
<CAPTION>
                                                                      QUARTER ENDED
                                       ---------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 1998              JANUARY 31          APRIL 30             JULY 31           OCTOBER 31
                                       ----------------   ----------------    ----------------   -----------------
<S>                                      <C>                <C>                  <C>                <C>
Net sales                                $11,873,115        $11,689,100          $13,727,433        $13,299,245
Gross profit                               5,068,908          5,076,615            5,670,681          5,442,867
Income before income taxes                 2,808,872          2,646,442            3,072,777          2,849,368
Net income                                 1,822,972          1,712,448            1,991,374          1,743,170
Earnings per common share                       .047               .045                 .052               .046
Earnings per common share -
    assuming dilution                           .047               .044                 .052               .045
</TABLE>


<TABLE>
<CAPTION>
                                                                      QUARTER ENDED
                                       --------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 1997              JANUARY 31           APRIL 30            JULY 31           OCTOBER 31
                                       ----------------    ---------------    ----------------    ---------------
<S>                                      <C>                 <C>                <C>                 <C>
Net sales                                $12,491,311         $10,645,571        $14,285,834         $14,766,134
Gross profit                               5,351,665           4,292,588          5,616,809           6,315,098
Income before income taxes                 3,203,870           2,035,806          3,102,845           3,614,419
Net income                                 2,080,361           1,312,523          2,016,683           2,397,579
Earnings per common share                       .054                .034               .052                .062
Earnings per common share -
    assuming dilution                           .053                .034               .052                .061
</TABLE>




                                       39
<PAGE>




ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
            FINANCIAL DISCLOSURE

        None.

                                    PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

    The  information  contained  in  the  Proxy  Statement  under  the  captions
"PROPOSAL  NO. 1,  ELECTION OF  DIRECTORS"  and  "EXECUTIVE  OFFICERS  AND OTHER
SIGNIFICANT  EMPLOYEES,   Executive  Officers"  concerning  directors,   persons
nominated to become directors, executive officers of the Company is incorporated
herein by reference.

ITEM 11.    EXECUTIVE COMPENSATION

    The  information  contained  in  the  Proxy  Statement  under  the  captions
"EXECUTIVE  COMPENSATION",  and under the caption  "PROPOSAL  NO. 1, ELECTION OF
DIRECTORS"  concerning  compensation  of directors,  is  incorporated  herein by
reference.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    The  information   contained  in  the  Proxy  Statement  under  the  caption
"BENEFICIAL OWNERSHIP OF COMMON STOCK" is incorporated herein by reference.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    The information  contained in the Proxy Statement under the caption "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS" is incorporated herein by reference.








                                       40
<PAGE>



                                     PART IV

ITEM 14.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

      (a)    1.   Index of Financial Statements
                  -----------------------------

                  The Company's financial statements and related information are
                  included  in Part  II,  Item 8 of this  Form  10-K on pages 23
                  through 39.

             2.   Index of Financial Statement Schedules
                  ---------------------------------------

                  None.














                                       41
<PAGE>

             3.   Index of Exhibits
                  ------------------

The  documents  filed as  exhibits  to this  Form 10-K  pursuant  to Item 601 of
Regulation S-K are:

     3.1  Amended  and  Restated  Articles  of  Incorporation  of Optical  Cable
          Corporation  (as  amended)  (filed as exhibit 3.1 to the  Registrant's
          Annual  Report on Form 10-K for the fiscal year ended October 31, 1997
          (file number 0-27022), and incorporated herein by reference).

     3.2  Bylaws of Optical Cable Corporation,  as amended (filed as exhibit 3.2
          to the  Registrant's  Annual  Report on Form 10-K for the fiscal  year
          ended October 31, 1997 (file number 0-27022),  and incorporated herein
          by reference).

     4.1  Form of certificate representing Common Stock (filed as exhibit 4.1 to
          the Registrant's  Annual Report on Form 10-K for the fiscal year ended
          October 31, 1997 (file number  0-27022),  and  incorporated  herein by
          reference).

    10.1  Royalty  Agreement,  dated  November 1, 1993,  by and  between  Robert
          Kopstein and Optical Cable  Corporation  (filed as exhibit 10.1 to the
          Registrant's  Annual  Report on Form 10-K for the  fiscal  year  ended
          October 31, 1997 (file number  0-27022),  and  incorporated  herein by
          reference).

    10.2  Assignment of Technology  Rights from Robert Kopstein to Optical Cable
          Corporation,  effective  as of October 31, 1994 (filed as exhibit 10.2
          to the  Registrant's  Annual  Report on Form 10-K for the fiscal  year
          ended October 31, 1997 (file number 0-27022),  and incorporated herein
          by reference).

    10.3  Employment  Agreement by and between  Optical  Cable  Corporation  and
          Robert Kopstein, effective November 1, 1998.

    10.4  Tax  Indemnification  Agreement,  dated as of October 19, 1995, by and
          between  Optical  Cable  Corporation  and  Robert  Kopstein  (filed as
          exhibit 10.4 to the  Registrant's  Annual  Report on Form 10-K for the
          fiscal  year  ended  October  31,  1997  (file  number  0-27022),  and
          incorporated herein by reference).

    10.6  Loan  Agreement  dated April 25, 1997,  by and between  Optical  Cable
          Corporation  and First Union National Bank of Virginia,  as amended by
          Modification Number One to the Loan Agreement, dated March 8, 1998, as
          amended by Modification Number Two to the Loan Agreement, dated August
          11, 1998, and as extended, the confirmation of which is set forth in a
          letter from First Union  National Bank of Virginia,  dated January 25,
          1999.

    10.7  Security Agreement, dated April 25, 1997, by and between Optical Cable
          Corporation  and  First  Union  National  Bank of  Virginia  (filed as
          exhibit 10.7 to the  Registrant's  Annual  Report on Form 10-K for the
          fiscal  year  ended  October  31,  1997  (file  number  0-27022),  and
          incorporated herein by reference).

    10.8  Promissory  Note,  dated  April  25,  1997,  issued by  Optical  Cable
          Corporation  to First Union National Bank of Virginia in the amount of
          $5 million,  as amended by Modification Number One to the ($5 million)
          Promissory  Note,  dated March ___,  1998,  and the related Sweep Plus
          Loan/Investment Services Description, and Promissory Note, dated April
          25, 1997,  issued by Optical Cable Corporation to First Union National
          Bank  of  Virginia  in  the  amount  of $10  million,  as  amended  by
          Modification  Number One to the ($10 million)  Promissory  Note, dated
          March ___, 1998 (filed as exhibit 10.8 to the  Registrant's  Quarterly
          Report on Form 10-Q for the fiscal  quarter ended April 30, 1998 (file
          number 0-27022),  and incorporated herein by reference).

    10.9  Optical  Cable  Corporation  Employee  Stock  Purchase  Plan (filed as
          exhibit 10.9 to the Registrant's Quarterly Report on Form 10-Q for the
          fiscal  quarter  ended  July  31,  1998  (file  number  0-27022),  and
          incorporated herein by reference).

    23    Consent  of KPMG LLP to  incorporation  by  reference  of  independent
          auditors'  report  included  in  this  Form  10-K,  into  registrant's
          registration statement on Form S-8.

    27    Financial Data Schedule.



                                       42
<PAGE>


      (b)    Reports on Form 8-K
             -------------------

             None

      (c)    Exhibits
             --------

             The documents set forth in the index of exhibits above are filed as
             exhibits to this Form 10-K pursuant to Item 601 of  Regulation  S-K
             and, if not incorporated by reference, are attached hereto.











                                       43
<PAGE>


                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                                       OPTICAL CABLE CORPORATION

Date: January 28, 1999                                 By /s/ Robert Kopstein
                                                          ----------------------
                                                           Robert Kopstein
                                                           Chairman of the Board
                                                           President and Chief
                                                           Executive Officer




      Pursuant to the requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities indicated as of January 28, 1999.

  /s/ Robert Kopstein             Chairman of the Board, President,
-----------------------            Chief Executive Officer and Director
   Robert Kopstein                 (principal executive officer)


  /s/ Luke J. Huybrechts          Senior Vice President of Sales
------------------------           and Director
   Luke J. Huybrechts


  /s/ Kenneth W. Harber           Vice President of Finance, Treasurer,
-------------------------          Secretary and Director
   Kenneth W. Harber               (principal financial and accounting officer)


  /s/ Randall H. Frazier          Director
-------------------------
   Randall H. Frazier


  /s/ John M. Holland             Director
-------------------------
   John M. Holland





                                       44
<PAGE>

                           INDEX TO ATTACHED EXHIBITS

Exhibit No.              Description
-----------              -----------

  10.3      Employment  Agreement by and between  Optical Cable  Corporation and
            Robert Kopstein, effective November 1, 1998.

  10.6      Loan  Agreement  dated April 25, 1997, by and between  Optical Cable
            Corporation and First Union National Bank of Virginia, as amended by
            Modification Number One to the Loan Agreement,  dated March 8, 1998,
            as amended by Modification  Number Two to the Loan Agreement,  dated
            August 11, 1998, and as extended,  the  confirmation of which is set
            forth in a letter from First Union National Bank of Virginia,  dated
            January 25, 1999.

  23        Consent of KPMG LLP to  incorporation  by reference  of  independent
            auditors'  report  included  in this Form  10-K,  into  registrant's
            registration statement on Form S-8.

  27        Financial Data Schedule.